Tag Archives: Licenses

Federal Circuit Jurisdiction over Declaratory Judgment Actions

Patent

Laboratory Corp of America (LabCorp) v. Metabolite Labs., Appeal No. 2008-1597 (Fed. Cir. 2010).

In an interesting exposition on Federal Circuit appellate jurisdiction, the court has ruled that LabCorp's appeal should be heard by the Tenth Circuit — concluding that the declaratory judgment action between these parties is merely a state-law contract dispute (patent & know-how license) that does not require determination of a substantial question of patent law. In particular, there were no patent law questions at issue here because those issues were decided in an earlier action, and those results are cemented under res judicata.

Federal Circuit Jurisdiction: 28 USC 1295(a)(1) provides the Federal Circuit with exclusive jurisdiction over the appeal of any final judgment of a district court if the jurisdiction of the district court arose "under any act of Congress relating to patents." In Christianson (1988) and Holmes Group (2002), the Supreme Court outlined the scope of this arising-under jurisdiction to include cases where the "well-pled complaint establishes either that federal patent law creates the cause of action or that the plaintiff's right to relief necessarily depends on the resolution of a substantial question of federal patent law." When the case also includes a state-law claim, there must also be a consideration of the "congressionally approved balance of federal and state judicial responsibilities." Grable (2005).

Federal Circuit Jurisdiction over Declaratory Judgment Actions: For declaratory judgment actions, the Federal Circuit has historically looked at the "hypothetical claim" "that the declaratory defendant would have brought." Speedco (Fed. Cir. 1988). This hypothetical claim analysis does not mesh-well with the Supreme Court's MedImmune (2007) decision. I would argue even more strongly that the Speedco precedent was overruled. MedImmune announced that a court may have declaratory judgment jurisdiction even if the declaratory defendant could not have brought suit at that time. Thus, under MedImmune, the court may still possess arising-under jurisdiction in a patent case even if no hypothetical patent claim could be described for the declaratory defendant. In its decision here, the Federal Circuit did not cite MedImmune, but rather followed its old Speedco reference without questioning that decision's ongoing precedential value.

The Federal Circuit can have jurisdiction over cases only involving breach-of-contract and legal-malpractice claims, but only if the well-pled complaint they raises a substantial question of patent law. Here, LabCorp argued that the prior patent license did not cover certain of its activities. On appeal, the Federal Circuit noted that such a claim could ordinarily raise a substantial question of patent law, but that no patent law question was at issue here because the court had already determined ` the scope of the "licensed patents." Because those issues are res judicata, their presence does not create any questions of patent law to be judged.

[F]or jurisdiction to exist in our court, the substantial question of patent law must be disputed and require resolution on the merits. . . . The issue of infringement . . . has been resolved and is no longer disputed. Accordingly, Metabolite's hypothetical breach of contract claim presents this court with no disputed issue of patent law. . . . Because the issue of patent law is not disputed and substantial, we do not have jurisdiction over this appeal.

Thus, the court "transfer[red] the appeal to the United States Court of Appeals for the Tenth Circuit."

Writing in dissent, Judge Dyk suggested that the Federal Circuit should have jurisdiction over a suit that determines the res judicata effect of a prior judgment that arose under the federal patent laws. Additionally, Judge Dyk disputed the majority's conclusion that the complaint raised no questions of patent law to be decided. "At oral argument, counsel for LabCorp conceded that 'it is possible that the court could have had to decide [the question of whether the outsourced homocysteine assays fell within the claims of the '658 patent] in this case.'"

Students Writing About the Law

Patent

I have been continually impressed with the Harvard Journal of Law & Technology’s Digest (JOLT Digest). The Digest is written in blog format by law students and covers interesting IP and technology related cases. Recent cases of interest include Reed Elsevier v. Muchnick, No. 08–103 (U.S. Mar. 2, 2010) (copyright standing & the registration requirement); Office Depot, Inc. v. Zuccarini, Case No. 07-16788 (9th Cir., Feb. 26, 2010) (in rem jurisdiction over domain names); A comment Citizens United and its Impact on the Internet. Rather than focusing on legal decisions, the Columbia Science & Technology Law Review blog tends to consider the legal side of issues in the news as does the Fordham IP Media & Entertainment Law Blog. The Michigan Telecommunications and Technology Law Review is one of the top IP-focused law journals. The MTTLR blog includes recent posts on cloud computing regulation, biosimilars, music licensing fees, and online dating (Stud or Dud).

Are there other good law-student run resources for keeping track of intellectual property law? [In another post I will write about IP-focused law reviews]

Princo v. ITC and the FTC’s Radical Analytical Framework

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Princo v. ITC (Fed. Cir. 2010) (En banc)

On Wednesday, March 3, the Federal Circuit will sit en banc to hear the oral argument in Princo v. ITC.  Two questions are presented in the appeal: < ?xml:namespace prefix ="" o />

1.       Whether a supposed agreement, between developers of new technology and a new product standard, to license one of the resulting patents only for use under that standard, thus foreclosing the possibility that it might be used to create a competing standard, could be held anticompetitive without (i) defining a relevant market in which the standards compete and (ii) proving that the agreement injured or was likely to injure competition in that market.

2.       Whether such an agreement, even if deemed anticompetitive, would be a proper basis for invoking the doctrine of patent misuse to refuse enforcement of different patents used to practice the joint standard.

More information on the case can be found in David Ryan short article published today titled Princo v. ITC and the FTC’s Radical Analytical Framework. [File Attachment: Princo.DavidFRyan.pdf (208 KB)]. 

This article is intended to assist those who wish to audit Wednesday’s oral argument . . . by providing an overview of the issues for determination before the en banc Court and a discussion of how the FTC’s arguments might affect determination of those issues.  Those issues and arguments are outlined in Section B, and the technical and procedural background facts are then set forth briefly in Sections C and D, respectively.  Section E then discusses in summary fashion the pertinent research market in which the RJV operated, the two pertinent product markets and the two vertical licensing markets within which the effects of the challenged patent rights clearance agreements must be assessed.

Damages: Federal Circuit Again Demands More Substance from Damages Experts

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PatentLawPic923ResQNet.com and Jeffrey Kaplan v. Lansa, Inc. (Fed. Cir. 2010)

The district court held that one of ResQNet’s patents was infringed and awarded $500k in past damages based on a 12.5% royalty rate. The court denied the patentee’s requested permanent injunction but instead ordered an ongoing license at the 12.5% royalty rate. The court also awarded sanctions against ResQNet’s counsel for failing to withdraw patents from suit that were clearly not infringed.

On appeal, the Federal Circuit took issue with the damages calculation — holding that the lower court had “relied on speculative and unreliable evidence divorced from proof of economic harm linked to the claimed invention.” 

This appellate decision should be seen as an extension of the Federal Circuit’s 2009 Lucent v. Gateway decision.  The issue of sufficiency of expert testimony on damages has been brewing for some time. I remember sitting near Judge Rader (one of the authors of this opinion) and both of us listening to Northern District of California Judge Ron Whyte refer to economic damages experts as the “most intellectually dishonest witnesses” that testify in his court.

Hypothesize Rather than Speculate: The statutory minimum damages for patent infringement is a “reasonable royalty.” That calculation typically involves a “hypothetical negotiation” in an attempt to calculate the rate at which the patentee would have licensed the patent to the infringer prior to the infringement.  Although the hypothetical negotiation is always involves guesswork, here the Federal Circuit reiterated the koan that the guesses must be based on evidence: “a reasonable royalty analysis requires a court to hypothesize, not to speculate.” Everyone understands that the arguments must have some evidentiary basis. Here, the real question was the type of evidence that can be applicable.  In particular, the appellate court held that the only relevant evidence is evidence related to “compensation for the economic harm caused by infringement of the claimed invention.”

Past Royalty Rate Must be Tied to Invention: The first problem with ResQNet’s evidence was that it presented past ResQNet license rates that were not bare patent licenses.  Addressing a similar issue, the CAFC wrote in its 2009 Lucent decision that a reasonable royalty damage award “cannot stand solely on evidence which amounts to little more than a recitation of royalty numbers, one of which is arguably in the ball-park of the jury’s award, particularly when it is doubtful that the technology of those license agreements is in any way similar to the technology being litigated here.”  Lucent.  According to the appellate panel, ResQNet’s expert witness Dr. Jesse David “used licenses with no relationship to the claimed invention to drive the royalty rate up to unjustified double-digit levels.”  The court indicated that experts need even more credible justification when the proposed royalty rate is much higher than might be expected.

Although the discredited prior licenses used by Dr. David were ResQNet licenses, those licenses were directed to the software code and re-branding rights but apparently did not specifically mention the patent number in suit and the evidence did not tie the licenses directly to the claimed invention. The appellate panel rejected these licenses as irrelevant to estimating royalty rate for the infringed patent: “In simple terms, the ’075 patent deals with a method of communicating between host computers and remote terminals—not training, marketing, and customer support services. The re-bundling licenses simply have no place in this case.”

The defendant Lansa did not offer any expert testimony on damages to counter Dr. David.  However, that failure does not remove the patentee’s burden to properly prove its damages. “As a matter of simple procedure, Lansa had no obligation to rebut until ResQNet met its burden with reliable and sufficient evidence.”

Judge Newman writing in dissent argued that the appellate panel over-stepped its bounds:

This is not a case of constructing, and applying, a royalty rate from totally unrelated content; it is simply a case of determining the evidentiary value of the infringed subject matter by looking at the various licenses involving that subject matter, and allocating their proportional value, with the assistance of undisputed expert testimony.

In the district court, ResQNet’s damages expert Dr. David, a qualified economist with experience in the field, followed the traditional application of the Georgia-Pacific factors, analyzing the impact of all of these factors in an extensive Expert Report and in testimony at trial. He was subject to examination and cross-examination in the district court, and the district court provided a full and reasoned analysis of the evidence. No flaw in this reasoning has been assigned by my colleagues, who, instead, create a new rule whereby no licenses involving the patented technology can be considered, in determining the value of the infringement, if the patents themselves are not directly licensed or if the licenses include subject matter in addition to that which was infringed by the defendant here. In this case, the added subject matter was usually the software code that implements the patented method, as the district court recognized, and whose contribution to the value of the license was evaluated by the damages expert and discussed by the court. My colleagues’ ruling today that none of that information is relevant to the assessment of damages is unprecedented, and incorrect.

Judge Newman was a member of the Lucent panel and argues that the majority decision here is “distorting the principles” of that case.

Ongoing damages: The appellate panel did not consider the issue of ongoing damages (compulsory license) because that question was not appealed.

Sanctions: The appellate panel did reverse the imposition of sanctions on Jeffrey Kaplan’s firm. In its decision, the court noted (i) the untimeliness of the motion for sanctions; (2) Kaplan’s prompt withdrawal of one of the three patents-in-suit; and (3) the actual “litigation substance” concerning the patent that was only withdrawn at the last minute.

Avoiding Declaratory Judgment Jurisdiction

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Patentees now proceed with caution when approaching a potential licensee. The Supreme Court’s 2007 MedImmune v. Genentech decision broadened the availability of declaratory judgment actions even when the potential licensee has no apprehension of suit. In a recent IP Today [$$$] article, Kristen Doyle provides five tips to help patentees avoid declaratory judgment jurisdiction:

  1. File suit prior to sending a demand letter. (The suit typically need not be pursued for 3-4 months).
  2. Send bland demand letters that avoid infringement allegations, threats of litigation, or even for licensing fees and that are signed by non-lawyers. Doyle could find not post-MedImmune decision that finds DJ jurisdiction based only on a letter that merely identified a patent and stated that the patent was available for licensing.
  3. Establish a definite negotiation period.
  4. Ask for a confidentiality agreement when negotiating.
  5. File the litigation in the “most logical venue.”

Obama: “There’s nothing wrong with other people using our technologies. We just want to make sure that it’s licensed and you’re getting paid.”

Patent

The following excerpt comes from President Obama’s recent townhall meeting in Ohio on Friday, January 22, 2010:

* * * * *

Q    I’m an inventor, and I hold U.S. patent number 7,397,731.

THE PRESIDENT:  Okay.

Q    And before I ask my question I’d like to make a sales pitch.  (Laughter.)  If you can use my patent in your next election, I think you can raise a ton of money worldwide.  You should take a look at it.

THE PRESIDENT:  All right, we’ll take a look.  All right.

Q    If you can’t use it, the government could use it, and I could build a multibillion-dollar business here in Ohio.  (Laughter.)

THE PRESIDENT:  All right, we’ll take a look at your patent.  Go ahead, what’s your question?

Q    Yes, okay, it has to do with international patent rights.  With all this free trade and trade barriers falling, it’s really hard for an individual like me with a global-scope patent to file all over the world and get patent protection everywhere, and having to go overseas to fight infringement.  So if you’re going to drop trade barriers, maybe you can extend my patent rights to the foreign countries.

THE PRESIDENT:  Well, this is a great question, and this is a huge problem.  (Applause.)  Look, our competitive advantage in the world is going to be people like this who are using their minds to create new products, new services.  But that only helps us and helps you build a multibillion-dollar company if somebody can’t just steal that idea and suddenly start making it in Indonesia or Malaysia or Bangladesh with very cheap workers. 

And one of the problems that we have had is insufficient protection for intellectual property rights.  That’s true in China; it’s true for everything from bootleg DVDs to very sophisticated software.  And there’s nothing wrong with other people using our technologies.  We just want to make sure that it’s licensed and you’re getting paid.

So I’ve given instructions to my trade offices — and we actually highlight this at the highest levels of foreign policy  — that these are issues that have to be addressed because that’s part of the reciprocity of making our markets open.  And so when I met with President Hu of China, this is a topic that, at dinner, I directly brought up with him.  And — but as you point out, it’s got to be sustained, because a lot of times they’ll say, yes, yes, yes, but then there’s no enforcement on their end.

And one of the things that we’re also doing is using our export arm of the U.S. government to help work with medium-sized businesses and small businesses, not just the big multinationals to protect their rights in some of these areas, because we need to boost exports. 

Can I just say, we just went through a decade where we were told that it didn’t matter, we’ll just — you just keep on importing, buying stuff from other countries, you just take out a home equity loan and max out your credit card, and everything is going to be okay.  And it looked, for a lot of people, like, well, the economy seems to be growing — but it was all built on a house of cards.  That’s what we now know.  And that’s why if we’re going to have a successful manufacturing sector, we’ve got to have successful exports.

When I went and took this trip to China, and took this trip to Asia, a lot of people said, “Well, why is he going to Asia?  He’s traveling overseas too much.  He needs to be coming back home and talking about jobs.”  I’m there because that’s where we’re going to find those jobs, is by increasing our exports to those countries, the same way they’ve been doing in our country. If we increased our exports — our share of exports by just 1 percent, that would mean hundreds of thousands of jobs here in the United States.  Five percent — maybe a million jobs, well-paying jobs.  So we’re going to have to pry those markets open.  Intellectual property is part of that process.

* * * * *

 The invention claimed by the 7,397,731 patent is pretty cool. It is a “perpetual day reminder calendar.” 

PatentLawPic896PatentLawPic897

The patent was prosecuted by the inventors and it is not surprising that the claims are written in some sort of modified Jepson language. Claim 1 reads as follows:

1. A perpetual day reminder calendar for illustrating day, date and month information, including:

a) a set of day indicating plates with day indica; b) a set of month indicating plates with month indica; c) a set of date indicating cubes with date indica; d) a display stand with locating guides in one of three possible configurations, top holding, center holding or bottom holding;

the improvement wherein said day indicating plates and said month indicating plates identically shaped to fit around said date indicating cubes in a manner providing an interlocking of, said plates and cubes and the shielding of unneeded indica allowing only the needed day, date and month indica to be viewed and the interlocking pieces forming a calendar stack having a unique locating interaction feature with said display stand whereby the perpetual day reminder calendar can be easily manipulated for the sequential displaying of day, date and month indica.

InventHelp Sues Gene Quinn (IPWatchDog)

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Tn96Invention Submission Corporation v. Gene Quinn & IP Watchdog (N.D.N.Y.)

Plaintiff, “InventHelp” is the most recent DBA name of the Invention Submission Corporation.  Defendant, Gene Quinn runs the IPWatchdog.com website and works with the same type of individual-inventor clients as InventHelp. The following two statements are taken directly from the InventHelp website:

From 2003 to 2005, we signed submission agreements with 6,592 clients. As a result of our services, 119 clients have received license agreements for their products, and 15 clients have received more money than they paid us for these services.

From 2006-2008, we signed Submission Agreements with 5,692 clients. As a result of our services, 94 clients have received license agreements for their products, and 21 clients have received more money than they paid us for these services.

During the 2003–2008 time period, fewer than 1 out of 300 InventHelp clients “received more money than they paid [to InventHelp] for these [invention promotion] services.”

For years, Gene Quinn has been writing about InventHelp and arguing that the company is “one of the most notorious of all invention scams.”  Now, the company has sued Quinn (and his wife) under the Lanham Act for providing a “misleading representation of fact … in commercial advertising or promotion…”; for defamation (apparently under NY Law?); for trade libel; and for interference with prospective clients.

Enforcing Contracts between Joint Owners: WARF v. Xenon

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Wisconsin Alumni Research Foundation (WARF) v. Xenon Pharma, Appeal No. 08-1351 (7th Cir. 2010).

WARF and Xenon jointly filed for patent protection for a cholesterol lowering enzyme known as Stearoyl CoA Desaturase (SCD). Warf also granted Xenon rights as an exclusive licensee and Xenon agreed to pay royalties for sales or sublicense fees. Xenon then sublicensed its rights to Novartis but did not pay royalties to WARF. Xenon's argument is based on the law of concurrent patent ownership. Generally, a patent co-owner is not required to share licensing revenue with other co-owners. The district court rejected that argument here — finding that the contract between WARF and Xenon is controlling over the patent law default rule. At trial, a jury awarded WARF one-million-dollars in royalties. That award was reduced then by the judge to $300,000.

The Seventh Circuit has now affirmed the lower court ruling that Xenon breached its license agreement by granting a sublicense without paying WARF its share.

35 U.S.C. 262 makes clear that each Joint owner of a patent right may make use of the rights "without the consent of and without accounting to the other owners." However, §262 has a major caveat in that it only applies "in the absence of any agreement to the contrary." Picking up on that caveat, the Seventh Circuit made clear that the "statutory default rule therefore controls unless there is an agreement to the contrary." The appellate panel went on to confirm that the WARF/Xenon agreement is certainly an "agreement to the contrary" despite the fact that it does not include a specific and explicit revocation of § 262 rights.

The bargained-for exchange between the parties provided that the Foundation would forego its right to separately license the patent in exchange for receiving a share of the profits from Xenon's commercialization of the technology—either directly or via a sublicense to a third party. Xenon received a significant benefit from the agreement—the exclusive right to exploit the technology protected by the joint patent application. Xenon cannot avoid paying royalties or sublicense fees to the Foundation simply by labeling the Novartis transaction a "license" rather than a "sublicense."

Quiet Title: Xenon also filed for its own patents on PPA compounds used to suppress SCD levels. WARF claimed ownership rights in the PPA because one of its scientists had contributed to the project and sued here to quiet title and also sued for conversion. On appeal, the court sided with WARF — finding that the WARF scientist's assignment of rights to Xenon was void because the scientist has already assigned all interest in future inventions to WARF.

Seventh Circuit: WARF originally appealed its case to the Federal Circuit. However, the Federal Circuit transferred the case to the Seventh Circuit based on a lack of subject matter jurisdiction. In a non-precedential opinion, the court held that the dispute did not "arise under the patent laws." [Link] An interesting aspect of that decision was that the court's statement that the Bayh-Dole Act (35 U.S.C. §§ 200-212) is not "patent law" when considering the question of appellate jurisdiction. The Federal Circuit refused to take the jurisdiction issue en banc. Judge Rader penned the following dissent from the en banc denial:

In an extremely short per curiam opinion with far too little explanation, the panel left the impression that it was giving away this court's jurisdiction over a broad swath of claims potentially arising from the Bayh-Dole Act, 35 U.S.C. §§ 200-212. While non-precedential, the panel's opinion nonetheless unnecessarily suggests that this court's jurisdiction to review these cases is limited. I respectfully dissent from this court's denial of rehearing en banc.

The panel concluded, albeit without much analysis, that WARF's complaint did not allege that the Bayh-Dole Act creates a cause of action. Thus it was entirely unnecessary for the panel to opine as to whether the Bayh-Dole Act is a "patent law" or not. And indeed, the Bayh-Dole Act, in my view, is most certainly a patent law. While the panel dismissed the notion that the Bayh-Dole Act's "mere inclusion" in Title 35 does not make it a "patent law," it seems to me that this is actually a pretty good indicator. After all, Title 35 is itself entitled "Patents," and Chapter 18, which encompasses only §§ 200-212, is called "Patent Rights in Inventions Made with Federal Assistance." Also, the language within some of the sections of the Bayh-Dole Act suggests its provenance as a patent law. For example, 35 U.S.C. § 201(d) defines "invention" as "any invention or discovery which is or may be patentable…." Section 201(e) explains that a "subject invention" is an invention conceived of or first reduced to practice by a contractor. "Conception" and "reduction to practice" are familiar patent law terms of art. Also, § 200 states that the Act intends "to use the patent system to promote the utilization of inventions arising from federally supported research or development…." The Bayh-Dole Act is, "at its heart," a patent law, albeit a patent law that employs some government contract rules to facilitate its patent-related policy objectives.

Although this court's panel opinion did not mention it, the reason that the "improvements" clause in this case does not require an infringement analysis is that the WARF/Xenon agreement features no issued patents, just patent applications. Thus, no court need perform a true infringement analysis. See GAF Building Materials Corp. v. Elk Corp., 90 F.3d 479, 483 (Fed.Cir.1996) (no declaratory judgment jurisdiction for infringement/invalidity of a design patent that had not issued when suit was filed; without an issued patent, there can be no infringement and thus no Article III controversy). Unlike GAF, however, this case features an undeniable controversy between the parties. To resolve this dispute, some court will have to compare the claims of the pending patent applications of the WARF/Xenon agreement with the alleged "improvements," and the contract's use of patent infringement parlance to define this term will necessitate some sort of patent analysis, starting with construction of the pending claims. Thus, this is a patent dispute for still another reason.

Appellate Court Enforces Permanent Injunction against Microsoft Word

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By Dennis Crouch

i4i Limited Partnership v. Microsoft Corp. (Fed. Cir. 2009) (Judges Schall, Prost, & Moore; opinion by Judge Prost)

The i4i district court decision created some turmoil this past summer when the Eastern District of Texas court ordered Microsoft to stop selling versions of its flagship MS Word product that infringe i4i’s patent covering xml editing technology. The injunction was stayed pending appeal, but now the Court of Appeals for the Federal Circuit (CAFC) has affirmed the lower court’s findings of validity and willful infringement and its award of enhanced damages and permanent injunctive relief. The only modification made by the court was to push-back the effective date of the injunction from sixty-days to five months (from the original order). Thus, “[t]he injunction’s effective date is now January 11, 2010.”

To be clear, the permanent injunction “applies only to users who purchase or license Word after the date the injunction takes effect. Users who purchase or license Word before the injunction’s effective date may continue using Word’s custom XML editor, and receiving technical support.” Beginning January 11, 2010, Microsoft will be prohibited from “(1) selling, offering to sell, and/or importing into the United States any infringing Word products with the capability of opening XML files containing custom XML; (2) using Word to open an XML file containing custom XML; (3) instructing or encouraging anyone to use Word to open an XML containing custom XML; (4) providing support or assistance that describes how to use Word to open an XML file containing custom XML; and (5) testing, demonstrating, or marketing Word’s ability to open an XML file containing custom XML.”

Because the injunction only applies to future purchasers, Microsoft does not need to back-fix its already-distributed software. Rather, it only needs to ensure that software sold on or after January 11, 2010 is non-infringing. Microsoft may request another emergency stay of relief in order to seek en banc review of the decision. However, that process has a low likelihood of success. Because of the large damage award of $240 million, Microsoft will likely push-forward with requests for rehearing en banc and eventually a petition for a writ of certiorari to the U.S. Supreme Court.

Judging Injunctive Relief: A patentee seeking a permanent injunction must show that (1) it has suffered an irreparable injury due to the infringement; (2) remedies available at law (typically monetary damages) are inadequate to compensate for that injury; (3) considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) the public interest would not be “disserved” by a permanent injunction. eBay, 547 U.S. at 391. Here the irreparable harm was proven by “evidence that Microsoft’s infringement rendered i4i’s product obsolete for much of the custom XML market, causing i4i to lose market share and change its business strategy to survive.” Monetary damages were inadequate because “a loss of market share, brand recognition, and customer goodwill” typically defy valuation “particularly when the infringing acts significantly change the relevant market, as occurred here.” The balance of the hardships favor i4i because the patented technology is “central” to i4i’s business, but only a small factor in Microsoft’s business. Here, the court held that the “cost of redesigning the infringing products” is irrelevant to the hardship consideration. “Microsoft is not entitled to continue infringing simply because it successfully exploited its infringement.” Likewise, the public interest favors upholding patent rights especially here where the injunction is of a “narrow scope.” “By excluding users who purchased or licensed infringing Word products before the injunction’s effective date, the injunction greatly minimizes adverse effects on the public.”

Notes:

Federal Circuit Lowers Bar for Declaratory Judgment Jurisdiction When Patentee is a Holding Company

Declaratory Judgment, Patent, Patent Cases 2009

Hewlett-Packard v. Acceleron 09-1283.pdf (Fed. Cir. 2009)

Acceleron’s patent No. 6,948,021 covers a hot-swappable server blade. In September 2007, Acceleron wrote to “call [HP’s] attention to the referenced patent.” HP responded that they “would be willing to agree not to file” a declaratory judgment action for 120 days. Going back, Acceleron simply suggested that no declaratory judgment jurisdiction existed.

Rather than negotiating, HP filed a declaratory judgment action in Delaware District court. However, Judge Robinson dismissed that case – finding the potential for litigation by Acceleron “too speculative a prospect to support declaratory judgment jurisdiction.”

On appeal, the Federal Circuit found Acceleron’s actions were sufficient to support a declaratory judgment action — a holding that the court admits “undoubtedly marks a shift from past declaratory judgment cases.”


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The Constitution limits federal court jurisdiction to actual cases and controversies. Under the Supreme Court’s 2006 MedImmune decision, the question of declaratory judgment jurisdiction is answered after considering “all the circumstances” rather than any bright line rule. Subsequently, the Federal Circuit indicated that declaratory judgment jurisdiction exists when a patentee asserts rights against “certain identified ongoing or planned activity of another party, and where that party contends that it has the right to engage in the accused activity without license.” (Quoting SanDisk). Likewise, a party who has “actually been charged with infringement of a patent” will be able to identify declaratory judgment jurisdiction. (quoting Cardinal Chem).

Here, Acceleron argues that a patent owner should have some mechanism for contacting another party to discuss patent rights without raising declaratory judgment jurisdiction. Without disagreeing with that premise, the Federal Circuit held that this is not such a case.

Although Acceleron made no direct charges of infringement, the company did indicate that its patents were “relevant” to HP’s product line; that HP’s response must come within two-weeks; and asked HP not to file a DJ action. “Under the totality of the circumstances, therefore, it was not unreasonable for HP to interpret Acceleron’s letters as implicitly asserting its [patent] rights.”

Although dicta, the Federal Circuit also suggested that the “totality of the circumstances” analysis should included the fact that Acceleron is “solely a licensing entity.” That fact apparently creates a greater shadow of litigation because “without enforcement [Acceleron] receives no benefits from its patents.”

Ecuador’s Compulsory Licensing of Pharmaceutical Patent Rights

Patent

Under the TRIPS agreement member Nations can force compulsory patent licenses at their discretion. The 2001 Doha declaration clarifies this point: “Each member has the right to grant compulsory licences and the freedom to determine the grounds upon which such licences are granted.”pic-76.jpg

In October 2009, Ecuador’s president issued a decree that allows its Ministry of Public Health to issue compulsory licenses based on public interests such as access and costs. According to IP Watch, the government is now “working on a mechanism for issuing those licenses” on a case-by-case basis. [Link]

Spinning this decision, Access-to-Medicines advocate Peter Maybarduk indicated that the US is the world leader in compulsory licensing:

Many countries have used compulsory licenses to promote public interests and remedy anti-competitive practices in a variety of sectors. Today, the United States is perhaps the most frequent user of compulsory licensing; including the government use of defense technologies, and judicially-issued licenses to remedy anti-competitive practices in information technology and biotechnology, among others. Canada routinely issued compulsory licenses during the 1960s and 70s to develop its national pharmaceutical industry. In recent years, a number of countries have issued compulsory licenses to improve access to medicines, including Thailand, Malaysia, Eritrea, Mozambique and Indonesia, among others.

In 2007, Brazil issued a compulsory license for the HIV/AIDS medicine efavirenz. Brazil has provided treatment to hundreds of thousands of people living with HIV/AIDS and saved well over US$1 billion through its combined medicines strategy of domestic production, importation, negotiation and compulsory licensing. [Link]

Major pharmaceutical companies have reportedly agreed to work with the government in collecting royalty payments. [Link] The same report indicates that Ecuador plans to obtain drugs both through local manufacture and imports. Prior to TRIPS, more than four-dozen countries categorically refused to grant patent rights on pharmaceuticals.

Federal Circuit Affirms EDTex Ruling that Iovate’s Muscle Building Patents are Invalid

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Iovate & University of Florida Research Foundation v. Bio-Engineered Supplements & Nutrition 200911201103.jpg (BSN) (Fed. Cir. 2009) (Download 09-1018)

Iovate is the exclusive licensee of UF's patented method for "enhancing muscle performance or recovery from fatigue." Pat. No. 6,100,287. The method includes the single step of administering a coposition that contains a ketoacid and either a cationic or dibasic amino acid. Eschewing their home-state courts, the patentee filed suit in the Eastern District of Texas — alleging that BSN was selling infringing supplements.

On summary judgment, district court judge Ron Clark held the patent invalid as anticipated under 35 U.S.C. 102(b). The most relevant prior art was a series of advertisements found in Flex Magazine.

Each ad includes a list of ingredients, directions for administering the dietary supplement orally to humans, and marketing claims and testimonials from bodybuilders extolling the virtues of the product. . . . The ad also describes how the product is made, including the four steps used to isolate the protein components from milk whey; lists a price of $24.99; states that the product is available at GNC and other health food stores or by phone; instructs the user on the amount to take; and offers a manufacturer’s rebate of $5.00 for mailing in a coupon with proof of purchase before July 31, 1996.

Judge Clark ruled that the advertising served as proof that the invention public use and on sale under § 102(b) based on the fact that the ads "show an actual product and state that it is available for purchase in health food stores, gyms, or by catalog." The district court also held that the ads explicitly disclose "all of the limitations of the asserted claims, including each of the claimed chemical components as well as the stated function of oral administration to a human to speed muscle recovery."

Under § 102(b) a patent is invalid if "the invention was patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patent in the United States."

On appeal, the Federal Circuit affirmed, but narrowed its grounds to focus only on the prior art as a "printed publication." Writing in a concurring opinion, Judge Mayer indicated that he would have found that the ads place the products "on sale" as well.

Iovate raised two arguments regarding the prior art. First, the patentee argued that the ads did not disclose each element in the claims because the preamble included the goal of "enhancing muscle performance" and while the ad merely touted promotion of "muscle synthesis and growth." The appellate panel not only rejected that argument, but also found that it "borders on the frivolous" since the specification and Iovate's briefs at the district court suggested that muscle growth was a proxy for enhancing muscle performance.

Iovate also argued that the ad was not sufficiently enabling as prior art. In rejecting that suggestion, the appellate panel held that "all one of ordinary skill in the art would need to do to practice an embodiment of the invention is to mix together the known ingredients listed in the ad and administer the composition as taught by the ad."

Affirmed.

This case leave open the question of when an advertisement would be evidence of public use or on sale.

Supreme Court Hears Bilski v. Kappos

Patent, , , ,

As she has done with past cases, Jill Browning provides the following same-day analysis of the Supreme Court oral arguments in Bilski v. Kappos.

By Jill Browning

The Federal Circuit, sitting en banc, affirmed the Patent Office's decision that the applicant's claims directed to a method of hedging risk in the field of commodities trading did not meet the patent eligibility standard of  35 U.S.C. § 101.  The Federal Circuit found that a "process" must be tied to a particular machine or apparatus, or must transform a particular article into a different state or thing (the "machine-or-transformation" test), to be eligible for patenting under 35 U.S.C. § 101.

The Supreme Court heard oral argument on the appeal from the Federal Circuit today, wherein the central issue is whether the Federal Circuit erred by holding that a "process" must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing ("machine-or-transformation" test), to be eligible for patenting under 35 U.S.C. § 101. 

Justices Sotomayor, Kennedy and Breyer were particularly active, with only slightly lesser participation by Justices Scalia and Ginsburg and Chief Justice Roberts. The Justices appeared to be struggling to come up with the "right" answer and appeared to be mindful of the potential consequences their ruling may have.

Justice Scalia initially indicated that the "useful arts" should mean the manufacturing arts, but not someone who writes a book on "how to win friends and influence people."  Justice Sotomayor followed up with a question regarding the difficulty in where to draw the line if there is no tie to science/technology, reciting the parade of horrors of potentially patentable methods for estate plans or tax avoidance.  Justice Breyer followed up with a question asking whether the framers of the Constitution intended for every  "new" method that helps the business owner to conduct business should be patentable, intimidating that the petitioner's proposed test could be too encompassing and asking for an alternative to limit it to something more reasonable, such as "useful arts."  Justice Sotomayor asked whether a method to cure someone that involves only human activity would fall within the Patent Act.  In response, Petitioner responded that yes, many of these things, if there were new and useful and met the other requirements of the Patent Act, should be patentable, giving the specific example of surgical methods.

Justice Breyer asked for a proposed "back up" principle if the Court "hypothetically" decided to reject the test that "any steps" may potentially be patentable.  Chief Justice Roberts and Justice Kennedy both followed up with comments indicating that certain "ideas" that are abstract should not be patentable, indicating that it would be difficult for him to think that the actuarial tables used in the insurance industry should have been limited to 1 person.  

Justice Ginsburg appeared to be in favor of something similar to the European system, which, she understood to require that the invention be tied to "science or technology".  The petitioner pointed out that the United States is different and that it would be difficult to define "technology based" in the United States.  Petitioner indicated that Europe defines "technology based" to exclude business methods.   Justice Scalia asked why, in a horse-based economy (in the 1800's) there were no patents directed to methods of training horses, as this would certainly have been useful at the time.

Justice Sotomayor indicated that "how" to approach a problem can't be enough to make it patentable, rather, it has to involve some transformation.  She also asked how to discern Congressional intent.  Further to the "intent" issue, Justice Stevens asked whether the original drafter of the Patent Act had any comments on this issue.

Justice Breyer indicated that there were four things to consider when making this ruling, two positive and two negative.  The two positives were the monopoly power the patent provides and the disclosure to the public.  The two negatives were the higher prices that result when a monopoly is in play and having to get a license or permission to practice a patented invention takes time and slows progress.  He indicated that in the past, we respected machines, now, this was asking to respect information, and he was grappling with whether providing patent protection would do more harm than good.

Justice Sotomayor commented that maybe it be sufficient to patent useful knowledge if it were tied to some transformation and the patenting of the Morse Code was discussed.

This concluded the Petitioner's opening argument.

The Respondent began by indicating that the Federal Circuit's test was not "inflexible," but only required some link between the method and the transformation.  At least Justice Sotomayor expressed concern regarding applying a  rigid exclusive test, in that potential patentable subject matter would be excluded from the patenting process.  Justice Ginsberg was curious regarding whether the Federal Circuit sua sponte came up with the test or whether the Government proposed the test during briefing.

The Respondent indicated a couple of different times during the argument that there would be many difficult questions to answer in the future, but that the test could accommodate the difficult questions and allow for exceptions to the machine or transformation test.

The State Street case was discussed and Justices Stevens, Scalia and Breyer wanted to know whether this case would come out the same way if the Federal Circuit's test were utilized.  The Justices appeared to expect a "no" answer, but Respondent indicated that State Street would have ended with the same result because the claims were directed to a machine (a computer).

This led to a discussion regarding the Respondent's apparent position, set forth in its last footnote on its brief, which Chief Justice Roberts was troubled about, that if the method is simply tied to a calculator or a computer, then it would be patentable, and this seemed to place form over substance.  Both Justices Kennedy and Stevens were curious with respect to what was "transformed" by the State Street computer program, indicating that it appeared to be merely a new process on an old machine.  The Respondent did not have a ready answer, deflecting the question by indicating that hardware could be present which would transform the machine.

In rebuttal, the Petitioner stressed its position against a rigid test, which could be avoided by simply looking at whether the "invention" is attempting to patent an abstract idea.

Federal Circuit: When are Subsidiaries Covered in a License Agreement?

Patent

Imation v. Koninklijke Philips Electronics200911040909.jpg (Fed. Cir. 2009)

At its heart, this case is simply one of contract interpretation.

Philips and Imation (via 3M) had originally cross-licensed a set of patents relating to CD and DVD technology. The agreement expired in 2000, although the licenses themselves were irrevocable and continued. After 2000 several subsidiaries were formed (GDM and Memorex), and Philips argued that those companies activities were not licensed because the companies were formed after expiration of the agreement.

On appeal, the Federal Circuit held that the later-formed subsidiaries were included within the original grant of rights just like future inventions are included within properly drafted assignment agreements. In the license states that Philips “agrees to grant and does hereby grant to [Imation] and its Subsidiaries a personal, non-exclusive, indivisible, nontransferable, irrevocable, worldwide, royalty-free license.” According to the court, that grant is a ” singular, present grant to a class composed of Imation and its Subsidiaries of rights to existing and future patents that fall within the definition of ‘Licensed Patents.'” Philips (losing) argument was that the grant language formed “multiple licenses over time.” Under that theory, no license would be granted to subsidiaries formed after 2000.

Reversed and Remanded

Notes:

  • Read the Decision: 09-1208.pdf
  • Oddly in July 2009, the parties announced that the litigation had been settled. Link.

Misuse of a Patent Pool: En Banc Federal Circuit To Decide Whether CD-R/RW Patentees Improperly Sequestered Alternative Technologies

Patent, ,

Princo Corp. v. International Trade Commission (ITC) (Fed. Cir. 2009)

The long-running Princo cases involve questions of when bundled licensing of patent rights may be seen as patent misuse (and thus rendering the patents unenforceable). The underlying pools of patents cover compact discs that are recordable (CD-R) and re-writeable (CD-RW).

In its most recent panel decision, the Federal Circuit (Judges BRYSON, GAJARSA, and DYK) rejected several theories of patent misuse, but remanded to consider whether the patentees has improperly sequestered alternative technologies. Judge Bryson did not agree with the novel misuse theory and dissented-in-part. Princo, US Philips, and the ITC each requested rehearing en banc.

The Federal Circuit has now granted the requests from US Philips and the ITC to hear the case en banc. (The court rejected Princo’s request for rehearing its questions en banc).

US Philips presented two questions:

  1. Whether a supposed agreement, between developers of new technology and a new product standard, to license one of the resulting patents only for use under that standard, thus foreclosing the possibility that it might be used to create a competing standard, could be held anticompetitive without (i) defining a relevant market in which the standards compete and (ii) proving that the agreement injured or was likely to injure competition in that market.
  2. Whether such an agreement, even if deemed anticompetitive, would be a proper basis for invoking the doctrine of patent misuse to refuse enforcement of different patents used to practice the joint standard.

The ITC did not explicitly list its en banc question, but basically argues that the remand is improper because (1) neither party raised the misuse theory that the court relied upon in its decision and (2) the ITC needs the Federal Circuit to define the “relevant market” before it can properly determine the market harm.

Briefs: US Philips en banc brief will be due at the end of November, and briefs from the ITC and Princo will be due thirty days from the date of service of US Philips. “Briefs of amici curiae will be entertained, and any such amicus briefs may be filed without leave of court but must otherwise comply with Federal Rule of Appellate Procedure 29 and Federal Circuit Rule 29.”

US Philips is represented by Douglas Melamed at WilmerHale; Princo is represented by Eric Wesenberg at Orrick; the ITC’s lead attorney is Clara Kuehn. Portions of the Melamed and Calebresi 1972 article on property rights is found in almost every property law casebook.

Declaratory Judgment Standing: Must All Patent Owners be Joined?

Patent

PatentLawPic795In re KGK Synergize (Fed. Cir. 2009) (nonprecedential order)

KGK’s patent No. 6,987,125 covers the use of polymethoxyflavone to treat cardiovascular disease and is co-owned by the US Government. (Trade Name Sytrinol). It appears that two of the inventors were under an obligation to assign rights to the USDA while the other two assigned their rights to KGK. 

Classic declaratory judgment scenario: SourceOne is a former licensee who developed a competing product.  KGK allegedly began threatening customers and SourceOne filed for declaratory judgment of invalidity and non-infringement against KGK.  The problem is that the US government as co-owner is likely immune from a DJ action.

On motion, the district court refused to dismiss the case even though the US government had not been joined as a party to the litigation.  KGK then filed a petition for writ of mandamus with the Federal Circuit.  Writing for a three-member panel, Judge Gajarsa denied the petition – finding that KGK had not explored all of its alternatives or that it could not obtain adequate relief after waiting for final judgment.

The district court opinion on rehearing is interesting in the way that it differentiates between constitutional and prudential limitations on federal court jurisdiction.  Although prudential requirements do not allow a patentee to sue for infringement without joining co-owners, such an action is within Article III standing limitations.  On the flip side, the declaratory judgment act (28 U.S.C. 2201(a)) does not have the same prudential limitations.

Rather, as the Supreme Court indicated in the MedImmune case, the requirement for declaratory judgment is much broader and focuses on the existence of “a substantial controversy, between parties having adverse legal intersts, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.”

Links:

  • David Donoghue discussed the original district court opinion here. He takes the following quote from that decision: “The approach urged by KGK (and the Government) would allow KGK to threaten legal action against SourceOne (or others) with impunity.  For those who gave into those threats, KGK would receive the benefit of the patent (a cessation of the alleged infringing conduct and perhaps compensation) without the need to do anything more.  For those who might rear up and seek a judicial resolution, KGK could retreat behind the Government’s cloak of immunity and prevent the infringement or validity of the ‘125 Patent from ever being tested in court.”

Another University Patent Ownership Dispute: Stanford Loses Rights Based on Researcher’s Side Agreement

Patent, ,

Stanford v. Roche (Fed. Cir. 2009) 08-1509r.pdf

Using federal NIH funding, Stanford scientists developed and patented a method of using PCR to measure HIV virus concentration in blood plasma. The development was done in partnership with the PCR leader Cetus. The Cetus PCR business was later purchased by Roche, and Stanford subsequently offered to license the patent rights to Roche (for a substantial royalty). After negotiations stalled, Stanford sued Roche for patent infringement. Roche claims that it has ownership rights or – at least – shop rights to the patents based on its acquisition of Cetus’s PCR assets. The district court (Judge Patel, N.D. Cal.) rejected Roche’s claim of rights, but did find the patents invalid as obvious (on summary judgment).

Roche’s Ownership: Roche raised ownership rights both as a counterclaim and as a defense. The district court held those claims barred by California’s statute of limitations. On appeal, however, the Federal Circuit held that the general statute of limitations does not operate to block defenses in litigation. Rather, “[u]nder California law, a defense may be raised at any time, even if the matter alleged would be barred by a statute of limitations if asserted as the basis for affirmative relief.” (Quoting Styne v. Stevens, 26 Cal. 4th 42, 51 (2001)). Likewise, the statute of limitations to claiming rights does not apply when ownership is raised as a challenge to a plaintiff’s standing to sue. “It is well settled that questions of standing can be raised at any time and are not foreclosed by, or subject to, statutes of limitation.”

The law of patent ownership is somewhat complex because it involves a mixture of state law (or the law of the local jurisdiction) and federal law. State contract law serves as the baseline, but federal law (esp. Federal Circuit law) creeps into many situations. Here, for instance, the Federal Circuit has held that the “question of whether contractual language effects a present assignment of patent rights, or an agreement to assign rights in the future, is resolved by Federal Circuit law.”

One of the listed inventors first signed an agreement with Stanford – promising to assign any future inventions that emerged from his employment. Later, the inventor signed an agreement with Cetus agreeing “to hereby assign” his interests. Under Federal Circuit law, these two contracts are treated differently. And, although the Cetus agreement came later, the company could claim equitable title immediately at the moment of invention while Stanford needed to actually obtain an assignment. The company also automatically held legal title in the patent application at the moment it was filed. (The inventor did not sign an assignment to Stanford until after filing).

“[B]ecause Cetus’s legal title vested first, Holodniy no longer retained his rights, negating his subsequent assignment to Stanford during patent prosecution.”

Recordation of Rights: Patent ownership regularly transfers without the new owner recording the assignment with the USPTO. Recordation is not required, but it does offer some benefits. Notably, where two entities both claim ownership (as there are in this case), a second assignee can hold title if it records first.

A [prior] assignment . . . shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage. 35 U.S.C. 261

One caveat in the statute is that the subsequent assignee must be a bona fide purchaser – i.e., take “without notice” and pay “valuable consideration.” Here, the Federal Circuit found that Stanford was at least on inquiry notice of the relationship between the inventor and Cetus and the potential for a rights-transfer.

Standing:

Stanford cannot establish ownership of Holodniy’s interest and lacks standing to assert its claims of infringement against Roche. Thus, the district court lacked jurisdiction over Stanford’s infringement claim and should not have addressed the validity of the patents. The district court’s grant of summary judgment of invalidity is therefore vacated, and the case is remanded with instructions to dismiss Stanford’s claim for lack of standing.

Notes:
  • Stanford would have won the case (at least the ownership issue) if it had written its employee agreement to automatically transfer rights upon creation of the invention. Best practices in patent law dictate that patent ownership (and right to sue) be always maintained in a single entity.
  • In Gerber Scientific Int’l v. Satisloh AG, No. 3:07-CV-1382, (D. Conn., September 25, 2009, order) (P. Dorsey), the court held that the assignment of patent rights in the original case did not include later-filed continuations-in-part (CIPs). “Although courts have found variously worded assignments to include CIPs, Defendants are correct that there is no binding precedent holding that an assignment with the exact terms cited above includes CIPs.” The Court has certified that issue for interlocutory appeal to the Federal Circuit who will likely hear the case. [Zura]

Lucent v. Microsoft: Damages

Damages, Patent, , , , ,

Lucent v. Gateway & Microsoft (Fed. Cir. 2009)

Lucent’s patent-in-suit claims was filed in 1986 and generally focuses on using an on-screen keyboard to enter information into a computer. In 2002, Lucent sued Microsoft and others for infringement. Since then, the patent has expired, but the litigation continues over past damages. Perhaps most notably, this case may serve as a reminder that a twenty year patent term represents a major span in the worlds of business and technology.

The primary infringing portion of Microsoft’s software appears to be the “date picker” function found in Microsoft calendars. In litigation, the jury sided with Lucent and awarded the patent holder with $350 million in damages. Here, I discuss three aspects of the opinion: damages; obviousness; and inducement.

Damages: Most of the action in the Federal Circuit decision revolves around damages. The parties appear to agree that Microsoft sold 110 million accused units with a total sales value of $8 billion. Based on that figure, Lucent requested $561 million in damages based on an 8% royalty rate of Microsoft’s sales revenue. Microsoft argued that the correct licensing rate should result in only $6 million lump sum in damages. On appeal, the Federal Circuit vacated the $350 million dollar award and remanded for a new trial solely on the issue of damages – finding that the original verdict was not supported by substantial evidence.

Reasonable Royalty Calculation: The Patent Act requires that a court award damages at least in the amount of a “reasonable royalty.” The hallmark of that calculation involves a hindsight reconstruction in an attempt to calculate the patentee’s differential “pecuniary condition . . . if the infringement had not occurred.” This is often done through a “hypothetical negotiation” reconstruction based on the Georgia-Pacific factors. See Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970); see also Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1554 n.13 (Fed. Cir. 1995) (en banc).

Entire Market Value: When a patentee proves that the patent related feature serves as the predominant basis for customer demand, courts allow damages to be based upon the “entire market value” of the product (i.e., 8% of the sales revenue of Microsoft Office) rather than focusing on the incremental value of the innovation. Here, the Federal Circuit held that the “only reasonable conclusion” is that the date-picker function is not a substantial driver of Office sales. “There was no evidence that anybody anywhere at any time ever bought Outlook . . . because it had a date picker.”

Patentees typically prefer to invoke the entire market value rule because it seemingly tends to lead to higher total damage payouts. Of course, the market value only sets a base. Interestingly, the Federal Circuit recognized here that the bar on using the entire market value of a product is rather arbitrary.

Although our law states certain mandatory conditions for applying the entire market value rule, courts must nevertheless be cognizant of a fundamental relationship between the entire market value rule and the calculation of a running royalty damages award. Simply put, the base used in a running royalty calculation can always be the value of the entire commercial embodiment, as long as the magnitude of the rate is within an acceptable range (as determined by the evidence). . . . Microsoft surely would have little reason to complain about the supposed application of the entire market value rule had the jury applied a royalty rate of 0.1% (instead of 8%) to the market price of the infringing programs. Such a rate would have likely yielded a damages award of less than Microsoft’s proposed $6.5 million.

The Court goes on to suggest that the entire market value rule has a place in cases where the invention is only a small portion of the product.

Some commentators suggest that the entire market value rule should have little role in reasonable royalty law. See, e.g., Mark A. Lemley, Distinguishing Lost Profits From Reasonable Royalties, 51 Wm. & Mary L. Rev. (forthcoming 2009) … Amy Landers, Let the Games Begin: Incentives to Innovation in the New Economy of Intellectual Property Law, 46 Santa Clara L. Rev. 307, 362 (2006) … But such general propositions ignore the realities of patent licensing and the flexibility needed in transferring intellectual property rights. The evidence of record in the present dispute illustrates the importance the entire market value may have in reasonable royalty cases.

Georgia Pacific Factors: In its opinion, the Federal Circuit emphasized the flexibility of its jurisprudence in deciding damages with an understanding that actual licensing (much less a hypothetical negotiation) is “complicated” and “inexact.” Ultimately, the case is being sent back for a new trial because the jury’s award was not logically tied to the evidence. (“[T] damages evidence of record was neither very powerful, nor presented very well by either party.”) Most notably lacking are comparable licensing agreements.

First, some of the license agreements are radically different from the hypothetical agreement under consideration for the Day patent. Second, with the other agreements, we are simply unable to ascertain from the evidence presented the subject matter of the agreements, and we therefore cannot understand how the jury could have adequately evaluated the probative value of those agreements.

Damages award vacated

Power Behind the Black Box of Obviousness: In a string of recent cases, the Federal Circuit has reinvigorated the notion that jury verdicts on the question of obviousness will likely be upheld on appeal. Here, Microsoft argued for a particular interpretation of the prior art that it presented. While being sympathetic to Microsoft’s argument, the court held that the defendant’s arguments did not meet the necessary burden.

When the underlying facts are taken in the light most favorable to Lucent, the non-moving party, the evidence reasonably permitted the jury to have decided that Microsoft did not prove by clear and convincing evidence that claim 19 would have been obvious.

Nonobviousness affirmed.

Inducement: Lucent’s case was built on the notion of contributory infringement. Microsoft’s software does not – just by itself – directly infringe Lucent’s asserted method claims. Rather, by selling the software, Microsoft leads its customers to directly infringe. Contributory infringement and inducement both require proof of underlying direct infringement. At trial, Lucent was unable to point to any actual instance where a Microsoft customer used Microsoft products to perform the claimed method. On appeal, the Federal Circuit affirmed the infringement finding by holding that circumstantial evidence was sufficient to support a conclusion that at least one person (other than the experts in the case) used the products in an infringing manner.

As in Moleculon, the jury in the present case could have reasonably concluded that, sometime during the relevant period from 2003 to 2006, more likely than not one person somewhere in the United States had performed the claimed method using the Microsoft products.

Infringement affirmed.

Microsoft Ordered to Stop Selling MS Word

Best Mode, Patent

i4i Ltd. v. Microsoft Corp. (E.D. Tex. 2009)

Texas style, the order from Judge Davis gets right to the point:

In accordance with the Court’s contemporaneously issued memorandum opinion and order in this case, Microsoft Corporation is hereby permanently enjoined from performing the following actions with Microsoft Word 2003, Microsoft Word 2007, and Microsoft Word products not more than colorably different from Microsoft Word 2003 or Microsoft Word 2007 (collectively “Infringing and Future Word Products”) during the term of U.S. Patent No. 5,787,449:

  1. selling, offering to sell, and/or importing in or into the United States any Infringing and Future Word Products that have the capability of opening a .XML, .DOCX, or .DOCM file (“an XML file”) containing custom XML;
  2. using any Infringing and Future Word Products to open an XML file containing custom XML;
  3. instructing or encouraging anyone to use any Infringing and Future Word Products to open an XML file containing custom XML;
  4. providing support or assistance to anyone that describes how to use any infringing and Future Word Products to open an XML file containing custom XML; and
  5. testing, demonstrating, or marketing the ability of the Infringing and Future Word Products to open an XML file containing custom XML.

This injunction does not apply to any of the above actions wherein the Infringing and Future Word Products open an XML file as plain text.

This injunction also does not apply to any of the above actions wherein any of the Infringing and Future Word Products, upon opening an XML file, applies a custom tranform that removes all custom XML elements.

This injunction further does not apply to Microsoft providing support or assistance to anyone that describes how to use any of the infringing products to open an XML file containing custom XML if that product was licensed or sold before the date this injunction takes effect.

This injunction becomes effective 60 days from the date of this order.

In addition to the injunction, i4i was awarded $200 million in compensatory and $40 million punitive damages based on Microsoft's adjudged willful infringement. 

Notes:

  • Read the Injunction Order: File Attachment: 20090811i4iinjunction.pdf (252 KB)
  • Read the Final Judgment: File Attachment: 20090811i4ijudgment.pdf (257 KB)
  • Doug Cawley and Mike McKool (McKool Smith) lead the i4i team; Matthew Powers (Weil) is lead counsel for Microsoft.
  • Microsoft can presumably fix its patent problem by eliminating the .docx format. According to court records, “i4i has presented evidence that it is possible to design a software patch that can remove a user’s ability to operate the infringing functionality.” Alternatively, Microsoft could buy the patent – although the price will now be substantially higher than it was in 2007.
  • Stays pending appeal: Under ther Federal Rules of Civil Procedure, Microsoft has a right obtain a stay of relief pending appeal after it posts an appropriate bond. However, that right only applies to monetary damages. There is no right to stay injunctive relief pending appeal. On occasions, both District Courts and the Federal Circuit will stay injunctive relief pending the outcome of an appeal.
  • Stays pending appeal: The district court has already denied Microsoft’s motion to stay injunctive relief. “The fact of Microsoft’s infringement causes i4i to suffer irreparable harm for every new XML customer that purchases an infringing Microsoft product. To stay any injunction would only prolong that harm without providing any remedy.”
  • Facing OpenOffice: OpenOffice may well be liable as well. If it comes to pass, i4i’s suits against those users may focus on users because no central entity controls its development and distribution (although Sun is a potential target).
  • Bilski?: i4i’s claim 14 may well fail the Federal Circuit’s Bilski machine-or-transformation test. The claim reads as follows:

A method for producing a first map of metacodes and their addresses of use in association with mapped content and stored in distinct map storage means, the method comprising:

  • providing the mapped content to mapped content storage means;
  • providing a menu of metacodes;
  • compiling a map of the metacodes in the distinct storage means, by locating, detecting and addressing the metacodes; and
  • providing the document as the content of the document and the metacode map of the document.

Patently-O Bits and Bytes No. 119

Bits and Bytes, Patent,
  • The AP on Hugo Chavez: Venezuelan officials plan to invalidate some pharmaceutical patents and allow domestic manufacturers to produce licensed medicines, an action that could cause shortages and scare off foreign investment, industry leaders said Sunday. [AP][via PatentHawk]
  • BPAI Data: An updated version of yesterday’s paper on BPAI decision data is available online here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1423922. Comments are welcome.
  • New Blog: Rocket Docket IP Litigation (E.D. Va. Patent Focus). The blog is edited by the folks at Williams Mullen. Their latest post is an update on the false marking litigation against Solo Cup.
  • National Patent Jury Instructions: A comittee assembled by Chief Judge Michel has released its set of model jury instructions. Although Judge Michel assembled the committee, the introduction makes clear that the instructions “have not been endorsed by the Federal Circuit Court of Appeals, and are not “official” jury instructions.” However, the instructions are likely to serve as the ongoing model. http://www.nationaljuryinstructions.org/.