- 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/.
Tag Archives: Licenses
Patently-O Bits and Bytes No. 119
- 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/.
Preliminary Injunctions and Obviousness in Design Patent Law
Titan Tire Corp. v. Case New Holland, Inc.
2008-1078 (Fed. Cir. 2009)
Titan (the patentee) and Goodyear (the exclusive licensee) combined to sue Case for infringement of its tractor tire design patent. (Des. Pat. No. D. 360,862). The district court rejected Goodyear’s motion for preliminary injunctive relief – finding that the evidence indicated that the patent claim was probably obvious. On appeal, the Federal Circuit affirmed.
Standard for Preliminary Relief: In order to obtain the “extraordinary” relief of a preliminary injunction to stop infringement before a final judgment, the a patentee must prove that “(1) it is likely to succeed on the merits, (2) it is likely to suffer irreparable harm in the absence of a preliminary relief, (3) the balance of equities tips in its favor, and (4) an injunction is in the public interest.” The likelihood of success requires proof that the patentee “will likely prove infringement, and that it will likely withstand [validity] challenges, if any.” When a defendant challenges a patent’s validity, the district court must weigh the evidence (both for and against) to determine whether the challenge “raises a substantial question” of validity.
“Thus, when analyzing the likelihood of success factor, the trial court, after considering all the evidence available at this early stage of the litigation, must determine whether it is more likely than not that the challenger will be able to prove at trial, by clear and convincing evidence, that the patent is invalid. We reiterate that the “clear and convincing” standard regarding the challenger’s evidence applies only at trial on the merits, not at the preliminary injunction stage. The fact that, at trial on the merits, the proof of invalidity will require clear and convincing evidence is a consideration for the judge to take into account in assessing the challenger’s case at the preliminary injunction stage; it is not an evidentiary burden to be met preliminarily by the challenger.”
The trial court’s decision on preliminary injunctive relief is reviewed for abuse of discretion.
Obviousness of Design Patents: Design patent claims are subject to the nonobviousness requirement of Section 103(a) — asking whether “the claimed design would have been obvious to a designer of ordinary skill who designs articles of the type involved.” However, it is unclear how KSR applies to design patent cases. Unfortunately, this decision provides no answers except that “it is not obvious that the Supreme Court necessarily intended to exclude design patents from the reach of KSR.”
Ordinarily, design patent obviousness analysis begins with a primary reference with design characteristics that “are basically the same as the claimed design.” Secondary references are then combined so long as the secondary references are “so related [to the primary reference] that the appearance of certain ornamental features in one would suggest the application of those features to the other.” Here, the lower court did not use the language of “primary and secondary references”, but the Federal Circuit found that the lower court’s obvious analysis was sufficient to for its denial of preliminary relief.
“[W]e cannot say the trial court abused its discretion in concluding that Titan was unlikely to withstand Case’s challenge to the validity of the ’862 patent on obviousness grounds.
Notes:
- Read the case: 08-1078.pdf
- The court explicitly avoided indicating whether obviousness analysis for design patents should be modified to conform to either KSR or Egyptian Goddess.
Declaratory Judgment: Personal Jurisdiction over Foreign Patent Holder
Autogenomics v. Oxford Gene Tech (Fed. Cir. 2009) 08-1217.pdf
The opposing viewpoints of Judges Newman and Moore continues to be seen in Federal Circuit decisions. This appeal arrived at the Federal Circuit after the Central District of California district court dismissed the case for lack of personal jurisdiction over the declaratory judgment defendant (and patent holder) Oxford Gene Technology.Writing for the majority, Judge Moore (joined by N.D. Ill. Judge Gettleman sitting by designation) affirmed the judgment. Judge Newman wrote in dissent.
Even in patent cases, a federal court’s personal jurisdiction over parties is based on state boundaries. Here, the case was filed in a federal court sitting in California. When a defendant challenges personal jurisdiction, the court must consider two general factors: (1) whether the forum state’s long-arm statute permits service of process and (2) whether assertion of personal jurisdiction would violate due process.” Most states have extended their long-arm statutes to the bounds of due process. Thus, the question collapses to a consideration of the US Constitutional as applied at the geographic state boundaries.
The Constitutional limits of due process can be met by either showing general personal jurisdiction (based on continuous and systematic contacts with the state) or specific personal jurisdiction (based on a defendant’s activities in the state that relate to the cause of action.)
Focusing on specific personal jurisdiction, this case is in some ways a repeat of the court’s 2008 Avocent holding that a patentee’s efforts at commercialization are irrelevant to the specific jurisdiction question. Rather, the minimum contacts for specific jurisdiction must relate to “only enforcement or defense efforts related to the patent.” Thus, although Oxford has licensed its patents to several California companies, those licenses do not work toward a finding of specific personal jurisdiction over the foreign company.
DJ Jurisdiction over a Non-US Company: Both the majority and dissent expressed concern that foreign patent holders may often fly under the radar in such a way that no US court would have personal jurisdiction. Of course, the patent statute deals with that potential eventuality. For a non-US patent holder, the District of Columbia Federal Court has jurisdiction “to take any action respecting the patent or rights thereunder” to the same extent “that it would have if the patentee were personally within the jurisdiction of the court.” 35 USC 293.
Section 293 makes an exception for non-US patent holders who designate a US person to receive process. The statute does not indicate that such designation serves as consent to personal jurisdiction in the person’s home location. However, cases have held that designating a US process agent under Section 293 operates as consent to personal jurisdiction. See In re Papst Licensing, 590 F. Supp. 2d 94 (D.D.C. 2008).
Section 293 reads as follows.
Every patentee not residing in the United States may file in the Patent and Trademark Office a written designation stating the name and address of a person residing within the United States on whom may be served process or notice of proceedings affecting the patent or rights thereunder. If the person designated cannot be found at the address given in the last designation, or if no person has been designated, the United States District Court for the District of Columbia shall have jurisdiction and summons shall be served by publication or otherwise as the court directs. The court shall have the same jurisdiction to take any action respecting the patent or rights thereunder that it would have if the patentee were personally within the jurisdiction of the court.
In the past year, about 11 patent infringement cases were filed in DC District Court.
Patent Licenses Include Inherent Rights Allowing Third-Party Manufacture
Corebrace, LLC. v. Star Seismic LLC 
(Fed. Cir. 2009) 08-1502.pdf
Corebrace’s patent covers an earthquake-resistant brace for steel framed buildings. The original rights-holder (the inventor, Benne Murthy Sridhara from Bangalore) first licensed patent rights to Star. Later, the patent rights were assigned to Corebrace.
Star’s nonexclusive license from the inventor grants a right to “make, use, and sell” licensed products. The license also includes a restriction that Star may not “assign, sublicense, or otherwise transfer” its rights – except to an affiliated company. The inventor did already have a relationship with CoreBrace and reserved for that company “all rights not expressly granted” including any improvements created “by a third party whose services have been contracted.”
The question on appeal is whether the license grants Star the right to use third-party contractors to manufacture licensed products for its own use. The Federal Circuit answered in the affirmative – holding that absent a clear disclaimer, a patent license includes a right to use a third party manufacturer.
The right to “make, use, and sell” a product inherently includes the right to have it made by a third party, absent a clear indication of intent to the contrary. (Following Utah law)
Patent licensing is complicated because the contracts are interpreted under state law. Here, the contract indicates that Utah law should be followed. There is not Utah decision on point. However, the Federal Circuit noted its own precedent as well as California Supreme Court cases that “have both persuasively held that a ‘have made’ right is implicit in a right to make, use, and sell, absent an express contrary intent. We consider that the Utah Supreme Court would therefore likely arrive at the same conclusion were it to consider the issue.”
Often, exclusive licensees are implicitly granted greater rights than their non-exclusive counterparts. In the non-exclusive setting – allowing the licensee to subcontract undercuts the patent-holder’s rights; while in an exclusive licensee scenario, the patentee is presumed to have fully exploited its patent rights in that one contract. In this case, however, the Federal Circuit ruled that the implicit right to sub-contract manufacturing does not depend on any exclusive license status.
Bits and Bytes No. 106: Patent Reform
- [UPDATED] Hal Wegner Reports the Following:
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- Phil Kiko of Foley Public Affairs reports that Secretary of Commerce Gary Locke has announced that he has chosen the next Under Secretary of Commerce for Intellectual Property and Director of the U.S. Patent and Trademark Office. The chosen candidate, who is being vetted, was not named.
- Congress is Moving Forward with Patent Reform:
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- April 30, 2009 hearing of the House Judiciary Committee.
- Here are some comments on the testimony:
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- Jack Lasersohn (venture capitalist): Venture capital requires strong and certain patents. The damage reforms create potential problems because sometimes a relatively minor product innovation will dramatically change the market position. “A new coating on a solar cell , that increases it’s conversion efficiency just a little bit, can dramatically shift the market for entire multi-billion dollar solar energy plants. A better drug on a drug eluting stent can shift the entire stent market. In either case, the question is ‘who is entitled to the profits arising from the use of the invention, the inventor or the infringer’?”
- Dean Kamen (Inventor & Businessman): patents should be strong and policy should be directed to support small innovative organizations.
- David Simon (Intel): patents are meant to allow manufacturing companies to fight each other – not for non-manufacturing inventors or their assigns to slow-down manufacturers. [This is a very rough paraphrase of Simon’s 13 page rant against non-practising entities.]
- Philip Johnson (J&J) on behalf of the 21st Century Patent Reformers wants money for the PTO, international harmonization (first-to-file), expanded post-grant review (12–month window), no change to the current damages system, only a codification of Seagate, no changes to venue law.
- Jay Thomas (Georgetown) argues that patent infringement damages are too unpredictable and that additional rules of evidence and practice can help solve the problem.
- Mark Chandler (Cisco) supports the reforms to halt the problem of non-practising entities who demand licenses.
- Bernard Cassidy (Tessera): Please do not change the patent law in ways that hurt small companies. The courts have already done enough through eBay, KSR, Medimmune, Microsoft v. AT&T, Seagate, Bilski, and TS Tech.
- [WRITTEN TESTIMONY.zip (3794 KB)]
- Absent from this testimony: Any representative from the Patent Office. At least three candidates are rumored to have been interviewed for the post of PTO Director – including former PTO Director Todd Dickinson and IP Hall of Fame member Mike Kirk. [See updated news above]
Prescriptions for Drafting Assertable Claims
Many patent cases are won and lost on claim drafting issues. In the recent Netcraft case, for instance, the claimed included the step of “providing a communications link through equipment of the third party.” In his three “Prescriptions for Drafting Assertable Claims, Ron Slusky shows how to avoid the drafting mistakes found in that claim. Ron Slusky is the author of Invention Analysis and Claiming: A Patent Lawyer’s Guide (ABA). Slusky’s seminars will be in seven venues this year: Chicago, Boston, Santa Clara, Philadelphia, DC, Dallas and NYC.
1. Claim the Invention in All of Its Commercially Significant Settings
An invention should be claimed in all of its commercially significant “settings” in order to prevent others from taking advantage of the inventor’s teachings while avoiding the patent.
A setting is a context in which the inventive concept is manifest—also sometimes called a “perspective” or “point of view”. For example, a cylinder lock invention may manifest itself in how the lock is constructed; in a unique type of key required to operate the lock; in the key-cutting machine that produces the unique type of key; or possibly even in the key blank. Each of these—the lock, the key, the key cutting machine and the key blank—is a separate setting in which the invention should be claimed because any given party may implement the inventive concept in only one particular setting. For example, manufacturers of key-cutting machines or key blanks will not infringe if only the lock itself was claimed. Other multiple-setting examples:
• a) Encoding a video signal (to reduce the amount of data required to represent it); b) decoding the encoded signal.
• a) Peptide; b) cell capable of producing the peptide; c) manufacturing the peptide.
A setting is not the same as a statutory class. For example, the lock invention could be defined within the key-cutting-machine setting by apparatus claims defining the structure of the machine as well as by method claims defining how the machine operates to cut the key.
2. Maintain the Integrity of the Invention Setting Boundary
Having decided to claim the invention in a particular setting, we should take care to restrict the claim to that setting. If something outside the boundary of the setting makes its way into the claim, parties whose activities would otherwise infringe the claim may no longer do so.
The following claim, for example, is intended to define a video compression invention in its encoding—e.g., integrated circuit encoder—setting.
A method comprising
generating a video signal to be encoded, and
encoding the video signal by performing the steps of …
Here the step of “generating a video signal to be encoded” is outside of the intended setting because the integrated circuit typically does not generate the video signal but, rather, receives it from somewhere else, e.g., separate scanning hardware. This is a point that integrated circuit manufacturers will lose no time in pointing out when the patent owner approaches them to take a license.
The solution is to assume that the input signal already exists at the point in time that the claimed method is carried out, thereby putting the actual generating of the input signal outside the boundaries of the claimed subject matter, and thereby restricting the claimed subject matter to the selected setting:
A method for encoding a video signal, the method comprising the steps of…
3. Draft claims that will be directly infringed by individual (as opposed to co-acting) parties
Contributory infringement, inducement and multiple-party direct infringement are all expensive and difficult to prove—and may not be able to be proved at all, even if the inventor’s teachings are being appropriated. Claims therefore should always be drafted to capture the activities of a) individual—as opposed to co-acting—parties who are b) direct infringers, if there is any way to do it (which there almost always is). That goal is largely achieved when the claims define the invention strictly within the boundaries of its various settings. However, we help ensure that our claims capture the activities of individual direct infringers by drafting and reviewing claims with such parties specifically in mind.
For example, infringement of the following internet-based claim invokes the actions of not only the desirable assertion target—the web server operator—but the individual internet user:
A method comprising
(a) selecting an icon displayed on a screen [user],
(b) transmitting to a web server a signal indicative of the selected icon [user],
(c) receiving the signal at the web server [web server], and
(d) processing the received signal in such a way that …. [web server]
An internet user and a web server operator are unlikely to be adjudged joint direct infringers; neither controls or directs the actions of the other. (See, e.g., BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373, 84 U.S.P.Q.2d 1545 (Fed. Cir. 2007)). And without direct infringement there can be no contributory infringement or inducement. So everyone escapes liability under such a claim.
The solution is to draft a claim strictly limited to the web server setting and, in so doing, draft a claim that reads exclusively on the activities of the web server operator.
A method comprising
(a) receiving a signal indicative of a user-selected screen-displayed icon, and
(b) processing the received signal in such a way that ….
Copyright © 2007, 2009 American Bar Association. All rights reserved. Adapted with permission.
Federal Circuit Remands Patent Pool Misuse Case: Issue of Improperly Sequestering Alternative Technology
Princo v. ITC
(Fed. Cir. 2009) Read the Decision
The ITC found that the CD-R and CD-RW disks imported by Princo violate a handful of Philips patents that cover industry standard compact disk technology. On appeal, the adjudged infringer argued that the patents should be unenforceable under the equitable doctrine of patent misuse. Giving some credence to the argument, the Federal Circuit vacated-in-part and remanded for further proceedings to determine whether Philip’s misused its patents by allegedly agreeing with a competitor not to license-out would-be competing technology.
Misuse is an antitrust theory that attempts to restrain a patentee from over-extending the anticompetitive strength of the patent rights in ways “contrary to public policy.” In some situations the antitrust authorities allow multi-company patent pooling as a way to promote foundational development and convergence. See Herbert Hovenkamp, Mark. D. Janis & Mark A. Lemley, IP and Antitrust § 34.4, at 34-20.1 (2009) (“Typical procompetitive benefits [of patent pools] include the clearing of blocking positions, the advantages flowing from integration of complementary technologies, and the cost savings from avoiding litigation.”). These agreements may be reviewed under the rule of reason for pro-competitive benefits.
In the early 1990’s Philips, Sony, and others formed a patent pool to cover CD-R and CD-RW technology and – in the process – defined the industry standard. Philips licenses the pools (but not individual patents) — charging a per disk royalty and requiring that the licenses be used only to make CD’s that comply with the defined “Orange Book compliant” standards. When Princo refused to pay the royalty, Philips sued for infringement in the ITC.
This appeal focuses on one particular patent in the pool – Sony’s U.S. Patent No. 4,942,565 (“Lagadec”). Lagadec claims a digital process for identifying the laser position. The patent pool also includes a patent covering a similar analog process for identifying the laser position developed by Philips. And, in fact, the defined standard requires that the analog process (not the digital process) be used.
Tying Non-Essential or Non-Used Patent: Princo argued that Lagadec is a non-essential patent and that Philips “improperly used its market power to force manufacturers seeking patents essential to the production of Orange Book compliant discs to also take a license to Lagadec, an allegedly-nonessential and Non-used Sony patent.” The Supreme Court saw this type of tying as problematic in Zenith v. Hazeltine, 395 US 100 (1968). In Zenith, the court held that “conditioning the grant of a patent license upon payment of royalties on products which do not use the teaching of the patent [is] misuse.”
Reasonable Claim Construction: Although the final claim scope was not clear, Philips argued under a reasonable broad claim construction, the standard analog process would infringe one of the claims in the Lagadec patent — thus making that patent “essential” to the pool and immunizing the pool from the tying challenge. Without determining the specific claim construction, the Federal Circuit agreed that misuse may be avoided if at the time of the licensing “it would have been reasonable for a manufacturer to believe a license … was necessary.”
We thus think that perfect certainty is not required to avoid a charge of misuse through unlawful tying. Rather, in this context a blocking patent is one that at the time of the license an objective manufacturer would believe reasonably might be necessary to practice the technology at issue.
The Federal Circuit’s “reasonable” approach meshes with the Hovenkamp Antitrust-IP treatise which states:
Indeed, even if the patents are only arguably conflicting, there are strong reasons to permit the settlement of patent disputes by means of a cross-licensing agreement. Not only will judicial economy be served and litigation costs reduced by settling such disputes, but the delay and uncertainty associated with blocking patent disputes may prevent either party from going forward with a commercial product for years while litigation is pending. Where two or more patents are arguably blocking, therefore, settling the dispute by means of cross-licensing is likely to be procompetitive.
Here, for instance, by licensing Lagadec, a manufacturer has more certainty that licensing the pool will avoid later allegations of infringement — a major goal of the standard setting operation.
Cutting-off Alternatives: By including Sony’s Lagadec patent in the pool but then preventing manufacturers from using the digital process, Princo argued that Philips improperly colluded to sequester the work-around technology from competitive development. In Princo’s words “Philips bribed Sony not to use . . . Lagadec to compete against the [Philips dominated standard].” On appeal, the Federal Circuit agreed with Princo that such collusion could be misuse even if the patent included “essential” claims.
It is one thing to offer a pooled license to competing technologies; it is quite another to refuse to license the competing technologies on any other basis. In contrast to tying arrangements, there are no [pro competitive] benefits to be obtained from an agreement between patent holders to forego separate licensing of competing technologies, as counsel for Philips conceded at oral argument. . . . Agreements between competitors not to compete are classic antitrust violations. . . . Agreements preventing patent licensing of competing technologies also can constitute such violations.
On remand, the ITC must determine whether Princo has provided sufficient evidence to show that Sony and Philips agreed not to separately license Lagadec as competing technology and that the digital technology could have been a viable alternative.
Dissent in Part: Dissenting in part, Judge Bryson would have fully affirmed the ITC’s findings.
Prior Discussion of the Case:
Patents Exhausted by Sale after Covenant Not to Sue
TransCore v. Electronic Transaction Consultants (ETC) (Fed. Cir. 2009)
TransCore’s patents cover automated toll collection systems. (Think E-ZPass). The company had previously settlement an infringement suit against a competitor (Mark IV) with a covenant not to sue on the patents. The present lawsuit arose when ETC began installing an automated toll collection system using Mark IV software. The district court dismissed the case – holding that Mark IV’s licensed sales exhausted any patent rights. On appeal, the Federal Circuit affirmed.
In Quanta (2008), the Supreme Court re-affirmed the non-statutory doctrine of patent exhaustion. Exhaustion is triggered by an authorized sale and operates to “terminate all patent rights to that item.”
Covenant versus Authorization: Here, TransCore slyly argued that its covenant not to sue could hardly be equated with an authorized sale sufficient to trigger exhaustion. Of course, a patent holder’s exclusive right is only the right to sue for infringement, and a covenant not to sue gives up all patent rights that could be used in that context. In other words, in the narrow patent context, a covenant not to sue is the functional equivalent to authorizing sales. As the Federal Circuit held in the Spindelfabrik (1987) “a patent license agreement is in essence nothing more than a promise by the licensor not to sue the licensee.”
Scope of Covenant: The license terms specifically focus on Mark IV as a party: “[TransCore] agrees and covenants not to bring any demand, claim, lawsuit, or action against Mark IV for future infringement.” However, the one-party focus does nothing against the exhaustion doctrine because once the software is sold by Mark IV, any patent rights associated with those copies of the software are exhausted. “[T]he district court correctly found that Mark IV’s sales to ISTHA were authorized and that TransCore’s patent rights are exhausted.”
No Stay of District Court Proceedings Pending Appeal of Preliminary Injunction
Fairchild Semiconductor v. Third Dimension (3D) Semiconductor 
(Fed. Cir. 2009) (nonprecedential order)
Fairchild originally licensed 3D's US and Chinese patents – agreeing to a royalty for all Fairchild products "covered by" a 3D patent. However, after analyzing the patents, Fairchild decided that it need not pay any royalties and then sued for a declaratory judgment that it owed no royalties and that none of its products are covered by 3D's patents.
Restraining License Termination: In a preliminary ruling, the district court granted Fairchild's request for a preliminary injunction prohibiting 3D from terminating the license agreement. The ongoing license serves as a defense to charges of patent infringement by 3D. As the district court held, "termination of the agreement does create irreparable harm in depriving Fairchild of its primary defense to 3D patent infringement litigation.
The threat of such litigation is not speculative: 3D has already filed a complaint in the United States District Court for the Eastern District of Texas and has promised to file an infringement case in China based on the Chinese patents otherwise licensed by the Agreement. Without the Agreement as an affirmative defense to those suits, Fairchild could be forced to endure years of litigation in those other forums despite this Court eventually ruling that Fairchild did not breach the Agreement.
The preliminary injunction is now on appeal to the Federal Circuit. In a recent order, the appellate panel rejected 3D's motion to stay the district court proceedings pending outcome of the appeal. 3D argued that the appeal divested the district court with jurisdiction over the matter. That argument was regarded "without merit."
A preliminary injunction, i.e., an injunction pendente lite, is an injunction issued pending the ongoing litigation. Although a district court may not proceed with matters involved with the injunction itself, e.g., it may not amend the injunction, or make findings to support its injunction while the injunction is on appeal, the district court may proceed with the litigation and permit discovery, enter rulings on summary judgment, or hold a trial on the merits. (internal citations omitted)
Briefing in the appeal will begin in April.
Notes & Docs:
- Federal Circuit Order
- Dennis Crouch, Enforcing Foreign Patents in the US: Distinguishing Voda, Patently-O (Dec. 12, 2008) at https://patentlyo.com/patent/2008/12/enforcing-forei.html.
Improper Summary Judgment on Doctrine of Equivalents; Marking Products that Perform Method Claims
Crown Packaging v. Rexam Beverage Can (Fed. Cir. 2009)
On summary judgment, the district court held that Rexam did not infringe Crown’s patent beverage can-top patent. The lower court also found that that Crown did not infringe Rexam’s beverage can “necking” patent. On appeal, the Federal Circuit reversed both rulings.
The Doctrine of Equivalents: Over the past two decades, the doctrine of equivalents been pushed out of the usual infringement discussion. Part of the doctrine’s downgrade is due to restricted application due to prosecution history estoppel (Festo) and tighter doctrine (Warner-Jenkinson). Perhaps equally important in the decline of the DOE has been the rise of claim construction as the primary variable of patent litigation. Rather than arguing for infringement as an equivalent, applicants are instead arguing for broad construction of the claim terms. Finally, patent drafters are – on average – better today than they were twenty years ago and spend more energy on considering how to draft claims that capture literal infringement. In a 2007 paper, Professors Lemley and Allison found something similar – that since the late 1990’s (even before Festo), that “equivalents claims usually failed, most often on summary judgment.” Their paper title – “Demise of the Doctrine of Equivalents” – overstates its case. The DOE is sometimes valuable.
Function-Way-Result Test: There are at least two alternate tests for infringement under the doctrine of equivalents. The function-way-result test considers “on a limitation by limitation basis” whether “the accused product performs substantially the same function in substantially the same way with substantially the same result as each claim limitation of the patented product.”
Summary Judgment on DOE: Here, the issue was not so much the law of the DOE, but rather the requirement for summary judgment that there be no remaining material issue of fact. Crown’s patent claims an “annular reinforcing bead,” while Rexam’s product uses a reinforcing fold. The lower court found those different enough to avoid infringement under the DOE. On appeal, however, the Federal Circuit reversed – finding at least one unresolved material issue of fact that precluded summary judgment. DOE requires expert testimony to step through the function-way-result test. And, here, the patentee’s expert stepped through each element and his testimony had not been completely indicted or even refuted.
Because Crown provided evidence in support of its position that the annular reinforcing bead of claim 14 of the ‘826 patent had only one function, and because we must resolve any reasonable factual inferences in favor of the nonmoving party, we conclude that there is a material issue of fact regarding the function of the claimed bead. Accordingly, we reverse and remand the district court’s grant of summary judgment of noninfringement.
This decision by Judge Moore is in line with the court’s 2008 Voda case which was affirmed after parsing expert testimony to ensure that the elements had been properly proven. (In Voda, the court used the alternative “insubstantial difference” test.)
Unmarked Sales by Licensee: In a scenario reminiscent of the recent Quanta v. LG case, Rexam licensed its patents to Belvac to make “neckers” used to stretch out the top of the can bodies. Under the license, Belvac was required “to notify its customers that they would require a separate license from Rexam to perform the smooth die necking method” that is claimed in Rexam’s patents. The license did not require Belvac to mark the machines that it sold. And, in fact, Belvac did not mark them with the Rexam patent number. Crown then used the machine to make over one hundred billion cans.
Marking under 35 U.S.C. § 287(a): The district court found that this past infringement was not actionable because Crown was not on notice of the patent. That decision seemingly follows from 35 U.S.C. § 287(a). Under that provision, a patentee who does not properly mark a patented article “is not entitled to damages for infringement prior to actual notice.” (quoting CAFC decision).
Marking of Method Claims: Rexam’s trick here was to assert only method claims. On its face, Section 287 applies to “any patented article,” and Federal Circuit precedent has clearly stated that the marking requirement does not apply when only method claims are asserted. With palpable regret, Judge Moore writes:
“The law is clear that the notice provisions of § 287 do not apply where the patent is directed to a process or method. Bandag, Inc. v. Gerrard Tire Co., 704 F.2d 1578, 1581 (Fed. Cir. 1983). In Hanson, 718 F.2d 1075 (Fed. Cir. 1983)—we held that 35 U.S.C. § 287(a) did not apply where the patentee only asserted the method claims of a patent which included both method and apparatus claims. Hanson is factually identical to this case, and we are therefore bound by the rule of Hanson.”
Thus the patentee is free to claim damages back six years under Section 286 even without marking or providing actual notice. This decision thus provides an additional reason to include method claims in a patent application. Now, it would be improper to conclude that there is no reason to mark products that perform method claims. In the 1993 American Medical Systems case, the Federal Circuit ruled that marking would be required if “both apparatus and method claims” were asserted and there is a “tangible item to mark.” In this case, the patent claimed both a method and apparatus, but Rexam sued only on the method claims.
Rooklidge: Patent Reform Damages Provision Violates Seventh Amendment
The following post is by Bill Rooklidge. Rooklidge is a patent litigator and former head of the AIPLA. He clerked at the Federal Circuit in the early 1980’s.
Richard Cauley’s March 14, 2009 guest post accurately characterized the damages reform provision of the Patent Reform Act of 2009 as “a judicial nightmare” because of its procedural complications, attendant delay and reversal potential. Two additional problems with that provision merit note: it perpetuates prior art subtraction and introduces into jury trial multiple potential violations of the Seventh Amendment.
Fact-finding and the Seventh Amendment. The Supreme Court coined the term “gatekeeper” in Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993), to describe the trial court’s obligation to “ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable.” In addition to rulings on Daubert motions, courts also fulfill their gatekeeper role by ruling on motions for summary judgment and judgment as a matter of law, motions in limine, evidentiary objections, and jury instructions. The bills’ damages section would enhance the courts’ gatekeeper role, but in doing so unconstitutionally invade the jury’s province as fact finder.
The bills would add to 35 U.S.C. §284 paragraph (c)(1), which would require the court to select from three methods for calculating a reasonable royalty “based on the facts of the case and after adducing any further evidence the court deems necessary.” A procedural rule requiring the court to weigh evidence to select from alternate theories would be void for depriving the patentee of its right to jury trial. See Fidelity & Deposit Co. of Maryland v. United States, 187 U.S. 315, 320 (1902). A genuine issue of material fact, that is, a dispute over facts that might affect the outcome, requires the issue to go to the jury. See generally Anderson v. Liberty Lobby, 477 U.S. 242 (1986). Similarly, the trial court’s exclusion of the entire market value rule under paragraph (c)(1)(A) for the patentee’s failure to make “a showing to the satisfaction of the court,” would violate the Seventh Amendment in a jury trial in which the patentee presents enough evidence to create a genuine issue of material fact. See Minks v. Polaris Indus., Inc., 546 F.3d 1364, 1372 (Fed. Cir. 2008) (vacating because trial “court necessarily engaged in an independent review of the evidence and substituted its conclusion for that of the jury on the factual issue of compensatory damages”).
The first section of the bills’ section (c)(1)(B) authorizes trial courts to exclude the patentee’s prior licenses for failure to make a “showing to the satisfaction of the court” of three facts regarding the claimant’s other licenses:
“the claimed invention has been the subject of a nonexclusive license for the use made by the invention by the infringer”;
the licenses have been extended “to a number of persons sufficient to indicate a generally marketplace recognition of the reasonableness of the licensing terms”; and
“the license was secured prior to the filing of the case before the court.”
The court also must determine whether the infringer’s use is “of substantially the same scope, volume, and benefit of the rights granted under such license. The second sentence of paragraph (c)(1)(B) requires a similar procedure for noninfringing substitutes for the infringing product or process. And paragraph (c)(1)(C) likewise requires the court to “conduct an analysis to ensure that a reasonable royalty is applied only the portion of the economic value of the infringing product or process properly attributable to the claimed invention’s specific contribution over the prior art.” A court making these findings would invade the province of the jury where the patentee presents substantial evidence on these issues.
Prior Art Subtraction. Section (c)(1)(A)’s requirement for application of the entire market value rule that the “claimed invention’s specific contribution over the prior art” be the “predominant basis for market demand” is just the latest form of “prior art subtraction.” Use of “specific contribution over the prior art” is an attempt to separate the “gist” or “heart” of the invention from the patent claims, and would introduce the extra step of subjectively redefining the scope of a patent. The Federal Circuit long ago rejected using the “gist” or “heart” of the invention to determine obviousness, see Para-Ordnance Mfg. v. SGS Importers Int’l, Inc., 73 F.3d 1085 (Fed. Cir. 1995), and recently rejected using the “point of novelty” in design patent law. Egyptian Goddess, Inc. v. Swisa, Inc., 543 F.3d 665, 678 (Fed. Cir. 2008). Stripping the prior art elements out of the claimed invention that has been examined by the USPTO, construed by the federal district court, and relied upon to determine validity and infringement, in no way approximates the “heart” or “gist” of the invention, and that inherently subjective process would be unfair to the patent owner, and would eliminate application of the entire market value to inventions consisting entirely of prior art elements, arguably the vast majority.
Paragraph (c)(1)(C) would limit the reasonable royalty base to the “economic value of the infringing product or process properly attributable to the claimed invention’s specific contribution over the prior art,” replacing apportionment with prior art subtraction. This analysis is no substitute for the sophisticated and nuanced apportionment approach available under existing case law such as Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1133-37 (S.D.N.Y. 1970). Paragraph (c)(1)(C) would address the combination invention problem by stating that for combination inventions “the contribution over the prior art may include the value of the additional function resulting from the combination, as well as the enhanced value, if any, of some or all of the prior art elements as part of the combination, if the patentee demonstrates that value.” This analysis, which finds no precedent in existing case law and lacks any readily definable economic standards, does not even begin to address the problem that subtracting the prior art elements simply does not approximate what the inventor really invented.
Replacement of “contribution over the prior art” with the “essential features” language from the Supreme Court’s recent Quanta Computer, Inc. v. LG Electronics, Inc., 128 S. Ct. 2109 (2008), would just put another label on prior art subtraction. Regardless of label, the bills’ damages provision would drastically reduce patent owners’ ability to obtain reasonable royalty damages, which could not be less fair to those, like independent inventors, research institutions and universities, that have no ability to obtain lost profits damages.
Notes
- Forward Looking Patent Damages
- Patent Reform 2009: Damages
- Patent Reform Act of 2009
- Richard Cauley’s March 14, 2009 guest post
- Rooklidge: Reform of a Fast-Moving Target: The Development of Patent Law Since the 2004 National Academies Report: rooklidgereform.pdf
Patent Reform 2009: More on Damages
Guest Post by Richard Cauley. Cauley is the author of the recent Oxford Press book titled Winning the Patent Damages Case: A Litigator’s Guide to Economic Models and Other Damage Strategies. I asked him to provide some thoughts on the damages proposals in the Patent Reform Act of 2009.
The damages provisions of the Patent Reform Act of 2009 are not new, nor, in an economic sense, are they particularly controversial. Although their introduction in this legislation may create a political firestorm among those who wish to artificially maximize the economic leverage of patentholders both in court and across the bargaining table, the solutions proposed in the latest attempt at patent reform merely reflect – and attempt to measure – the true economic worth of a patent and the reasonable return to which an inventor is entitled.
What these damages provisions (all of which were contained in the various versions of the failed Patent Reform Act of 2007) attempt to accomplish is to force the court to limit the patentholder’s recovery to the real economic worth of an invention – for example, to a company who might want to license that invention to use in another product or to a consumer who might purchase a product because of that very invention.
Thus, the section limiting the application of the entire market value rule to situations in which the actual invention – the advance over the prior art – forms the basis of consumer demand compensates the inventor only to the extent his invention produces something that people actually want to buy.
This section also ensures that patents on relatively minor components are not given a value in excess of their real economic worth. Where the patent does not cover something critically important to the consumer, the provision limits the patentholder’s recovery to the value of that component to the customer – and precludes a recovery based on the entire product, which may include many other patented components.
Likewise, the section requiring the court to determine whether there is already a “market price” for licensing the patent – in the form of pre-existing licenses for similar patent rights – simply measures how much a prospective licensee would be willing to pay on the open market for the right to use the patent. Of course, this is what the reasonable royalty remedy is supposed to measure.
The purpose of these provisions is obvious. First, they will limit the ability of patentholders, primarily patent trolls, to recover damages in patent litigation far in excess of the actual economic value of those patents. More importantly, however, they will reduce the threat of such inflated damages awards – a threat such plaintiffs use as leverage in licensing campaigns and settlement negotiations to secure recoveries far exceeding the worth these patents really have to the prospective licensees.
The problem with these proposed statutes, then is not their objective – to give patents the value they actually deserve – but the implementation. As written, these provisions are a judicial nightmare. They require the court to conduct a kind of “damages Markman” in which the court must decide, before giving the case to the jury, the economic value of the patent’s “specific contribution over the prior art,” the “basis” for the “market demand” for an infringing process, the “relevant market” for a claimed invention and whether that market has “similar noninfringing substitutes” for the claimed invention. Apparently, the court is also supposed to make the economic decision of which Georgia Pacific factors the jury is allowed to consider.
The delay which will be caused in an ongoing trial will inevitably be substantial and the opportunities for reversible error in this process will be legion. Although the intent of the drafters of these provisions was certainly praiseworthy– to codify limits on jury’s overvaluing patents in awarding damages – the byzantine rules they set up to implement these objective shows that they certainly have never tried a patent case. Indeed, if the courts would simply follow the judicially- established guidelines already in place, this complex set of regulations would not be necessary.
Hopefully, calmer heads will prevail before these rules are actually imposed on the patent litigation bar and on the courts. There are better and more effective ways of reaching these objectives.
Indeed, it is not surprising that, in another section of the bill – limiting venue for patent cases to districts in which the defendant has a facility – there appears to be no appropriate venue for a patent case against an infringing foreign defendant with no facilities in the United States. Thus, a plaintiff might have jurisdiction over an infringer, but nowhere to sue the company – all dressed up and no place to go.
Links:
Forward Looking Patent Damages
In the wake of eBay, courts and scholars have been working to figure out what to do after denying injunctive relief. A common suggestion is to award an ongoing royalty – often termed a compulsory license. In an impressive body of research stretching back to the year 1660, Lewis & Clark professor Tomás Gómez-Arostegui concludes that “federal courts lack the authority, in either law or equity, to award prospective compensation to plaintiffs for post-judgment copyright or patent infringements.”
Until such time as Congress creates a new form of compulsory licensing, future-damage awards and continuing royalties can only be granted in lieu of a final injunction by consent of the parties.
In non-patent cases, such as accidental death, courts regularly calculate future damages – such as earning capacity. However, in those cases, the award is based on a past tort. In patent cases, prospective damages are based upon future infringing actions.
Looking historically, Gómez-Arostegui could not find a single instance prior to 1789 where the Chancery “awarded a continuing royalty in lieu of a final injunction in infringement cases.” In cases where no injunction was granted, the court did “nothing at all” about ongoing infringement.
How does this cut:
Read the paper here.
What is a troll patent and why are they bad?
By TJ Chiang (Professor at George Mason Law School). Professor Chiang wrote the following squib after reading yet another article complaining about patent trolls.
There is much debate and controversy over the term "patent troll." Let me suggest a fairly narrow definition, but one that identifies a category of patents with distinct problems. Moreover, let me suggest that we should talk about individual patents as "troll patents," rather than entire entities as patent trolls. A troll patent is one that:
- Is owned by someone that does not practice the invention.
- Is infringed by, and asserted against, non-copiers exclusively or almost exclusively. By copying I mean any kind of derivation, not just slavish replication.
- Has no licensees practicing the particular patented invention except for defendants in (2) who took licenses as settlement.
- Is asserted against a large industry that is, based on (2), composed of non-copiers.
The problem with a patent troll—or, more accurately, the particular troll patent—that fits all four conditions above is that the troll patent does only two things. First, it gathers dust in the patent office. Second, it inflates prices on products. The patent itself contributes nothing useful to society, in so far as the people who actually make anything useful would have done it equally in the absence of the patent.
These four conditions also rule out a few non-practicing entities; or, rather, many of the patents held by these entities. University-held patents are largely not troll patents, in so far as they are often on substantial advances where the infringers copy. Individual inventors are also not always trolls. An individual inventor that licenses others to commercialize the invention is not a troll; nor where the inventor actually has something significant that gets pirated. But a patent owner who sits in wait to ambush an industry later, with a patent that does nothing otherwise except gather dust, is a troll.
One hypothetical that will surely be thrown at me is the individual inventor who tries to commercialize the invention, but fails, and then sues the industry years later. This inventor is a visionary ahead of his time who was merely unlucky. On the other hand, this inventor still contributed nothing useful to society. It is worth emphasizing the fact that, by my hypothetical, the industry produced the same technology independently, without copying anything from the patent. In the absence of copying by someone else or the commercialization of the product through the patent, I do not see the inventor as having done society much of a favor.
Patent Reform 2009: Damages
The most contentious portion of the Patent Reform Act of 2009 is the damages provision. The current damages statute gives little guidance to a court. Damages must be “adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer.” 35 U.S.C. §284. The Court may “increase the damages up to three times the amount found or assessed.” Id. The courts have given some flesh to the rough skeleton created by these statutes. One construct is the hypothetical negotiation – asking the counterfactual question of what licensing scheme would these dueling foes have agreed to if they had actually come to a licensing agreement. The Georgia Pacific factors guide the process of deternining a reasonable royalty. In some cases, courts allow a patentee to recover lost profits.
As it turns out, the damages actually awarded in patent cases are generally thought to be much higher than negotiated license agreements. Part of the difference stems from the reality that patent damages are awarded only on patents that are known to be valid, infringed, and enforceable, and after the risk and expense of litigation have already been taken. In ordinary license negotiations, these risks lower the potential royalty rate and – in contrast – should increased the level of compensation in post-trial damages. There is some evidence that juries simply tend toward large damage awards.
Stacking Problem: In some technology areas – such as electronics – this creates a potential problem known as royalty stacking. Most electronics products are covered by multiple patents – often dozens of patents. CDMA2000 communication standard, for instance, reportedly invringes at least 924 patents. [LINK] When each patentee is awarded a 5% royalty, it does not take long before the entire revenue is taken just to pay for intellectual property rights. If everyone has blocking rights then no business can get done, and we see the tragedy of the anti-commons. Of course, stacking is only a problem in theory. CDMA2000 is a standard actually used around the world. Producers are making (some) money. Multiple patents covering products have causes prices to be raised, but it is not clear than any market has been destroyed or even that the royalty payments outway the benefit of the innovation.
Uncertainty Problem: Jury verdicts are quite unpredictable, and because the royalty rules are so loose, damages appeals are rarely successful.
The new legislation appears to take on these problems in a way to (1) reduce the average damage award; (2) make damage awards more rational and predictable; and (3) make damages judgment more subject to appellate review.
The practical approach of the legislation is to create a “standard for calculating reasonable royalty” which require a determination of the “specific contribution over the prior art” to determine damages. Some courts already follow the rules set out in the proposed legislation. Thus, legislation advocates may refer to the damages reforms as simply a clarification that limits the actions of rogue courts.
The proposed text reads as follows:
35 USC 284(c)(1) IN GENERAL.-The court shall determine, based on the facts of the case and after adducing any further evidence the court deems necessary, which of the following methods shall be used by the court or the jury in calculating a reasonable royalty pursuant to subsection (a). The court shall also identify the factors that are relevant to the determination of a reasonable royalty, and the court or jury, as the case may be, shall consider only those factors in making such determination.
”(A) ENTIRE MARKET VALUE.-Upon a showing to the satisfaction of the court that the claimed invention’s specific contribution over the prior art is the predominant basis for market demand for an infringing product or process, damages may be based upon the entire market value of that infringing product or process.
”(B) ESTABLISHED ROYALTY BASED ON MARKETPLACE LICENSING.-Upon a showing to the satisfaction of the court that the claimed invention has been the subject of a nonexclusive license for the use made of the invention by the infringer, to a number of persons sufficient to indicate a general marketplace recognition of the reasonableness of the licensing terms, if the license was secured prior to the filing of the case before the court, and the court determines that the infringer’s use is of substantially the same scope, volume, and benefit of the rights granted under such license, damages may be determined on the basis of the terms of such license. Upon a showing to the satisfaction of the court that the claimed invention has sufficiently similar noninfringing substitutes in the relevant market, which have themselves been the subject of such nonexclusive licenses, and the court de termines that the infringer’s use is of substan tially the same scope, volume, and benefit of the rights granted under such licenses, damages may be determined on the basis of the terms of such licenses. ”
(C) VALUATION CALCULATION.-Upon a determination by the court that the showings required under subparagraphs (A) and (B) have not been made, the court shall conduct an analysis to ensure that a reasonable royalty is applied only to the portion of the economic value of the infringing product or process properly at tributable to the claimed invention’s specific contribution over the prior art. In the case of a combination invention whose elements are present individually in the prior art, the contribution over the prior art may include the value of the additional function resulting from the combination, as well as the enhanced value, if any, of some or all of the prior art elements as part of the combination, if the patentee demonstrates that value.
”(2) ADDITIONAL FACTORS.-Where the court determines it to be appropriate in determining a reasonable royalty under paragraph (1), the court may also consider, or direct the jury to consider, any other relevant factors under applicable law.
Notes:
- I’ll use this opportunity to plug a new book by Richard Cauley: Winning the Patent Damages Case (Oxford 2009). Great book, the only problem is the $185 price tag.
- The Bills have received numbers: H.R. 1260 is sponsored by Rep. Conyers (MI) and co-sponsored by Reps. Berman (CA), Goodlatte (VA), Jackson-Lee (TX), and Smith (TX). S. 515 is sponsored by Sen. Leahy and co-sponsored by Sens. Crapo (ID), Gillibrand (NY), Hatch (UT), Risch (ID), Schumer (NY), and Whitehouse (RI). Both Bills have been referred to their respective Judiciary Committee which are headed by the Bill sponsors.
Back Reading
- Dennis Crouch, Patent Reform Act of 2009, Patently-O (March 3, 2008).
- William Rooklidge, “Reform” of Patent Damages.
- Dennis Crouch, Patent Reform 2007: Apportionment of Damages, Patently-O (May 25, 2007).
- Amy Landers, 2007 Patent Reform: Proposed Amendments on Damages, Patently-O (April 29, 2007).
Should the Supreme Court Grant Cert in Rambus?
This post was written by Professor Josh Wright. Wright is a professor at George Mason University Law School, but is visiting this semester at the University of Texas Law School in Austin. This post was originally published on the blog Truth on the Market.
As noted, the FTC has exercised its right under 15 USC 56(a)(3) to petition for a writ of certiorari to review the judgment of the D.C. Circuit in its FTC v. Rambus. The FTC press release is here. The petition is here. The questions presented, as framed by the Commission are:
1. Whether deceptive conduct that significantly contributes to a defendant’s acquisition of monopoly power violates Section 2 of the Sherman Act.
2. Whether deceptive conduct that distorts the competitive process in a market, with the effect of avoiding the imposition of pricing constraints that would otherwise exist because of that process, is anticompetitive under Section 2 of the Sherman Act.
I do not believe the FTC has presented a convincing case for granting cert. Further, I don’t think the Supreme Court should grant cert in Rambus for reasons I’ll discuss in the post. For a more detailed exposition on some of the issues touched upon by this post, see my article with Bruce Kobayashi, Federalism, Substantive Preemption and Limits on Antitrust: An Application to Patent Holdup (forthcoming in the Journal of Competition Law and Economics).
The FTC lists what I count as five separate reasons to grant the petition:
(1) the D.C. Circuit applied an overly restrictive “but-for” causation standard that would require the Commission to show that Rambus’s conduct was anticompetitive (”the court of appeals erred in supposing that a Section 2 tribunal must identify a particular anticompetitive effect in order to find liability”);
(2) the court erred in its application of NYNEX v. Discon, Inc. to Rambus to conclude that the loss of an opportunity for the SSO (JEDEC) to obtain a RAND commitment from Rambus was not an anticompetitive effect under the antitrust laws;
(3) the Supreme Court should grant the petition to clarify “the governing standards of causation in Section 2 cases”;
(4) the D.C. Circuit decision is at odds with the Third Circuit’s Broadcom decision which held that the loss of a RAND commitment due to deception is a proper basis for Section 2 liability; and
(5) the set “inconsistent set of rules” creates a conflict that “threatens confusion regarding the conduct of participants in industry-wide standard setting,” “will discourage participation in standard setting proceedings,” and “ultimately harm consumers.”
I want to examine some of those issues more closely, sketching out reasons why I do not believe that they warrant cert, and also highlight some issues the FTC did not but should have addressed in its brief to make the case more compelling. All of that below the fold. (more…)
The Rambus Certiorari Petition: Causation, Competition, and Standard-Setting Organizations
This post was written by In December 2008, the Federal Trade Commission (FTC) filed a petition for certiorari in the Rambus case. There are two central issues in the petition. First, what is the standard of causation needed to connect deceptive conduct with the acquisition of monopoly power? And second, do higher prices in standard-setting organizations (SSOs) present competitive harm?
As the D.C. Circuit articulated the facts in In re Rambus, 522 F.3d 456, Rambus developed and licensed computer memory technologies. Between 1991 and 1996, the company participated in the Joint Electron Device Engineering Council (JEDEC), a semiconductor engineering SSO. In 1993 and 1999, respectively, JEDEC approved a synchronous dynamic random access memory (SDRAM) standard and a double data rate (DDR) SDRAM standard that included technologies over which Rambus asserted patent rights. In 1999, Rambus informed DRAM and chipset manufacturers that it held patent rights over technologies included in the standards and that the continued manufacture, use, or sale of the products constituted infringement.
Federal Circuit affirms permanent injunction in face of prior license agreements
Acumed LLC v. Stryker Corp. (Fed. Cir. 2008)
In 2004, Acumed sued Stryker for infringing a patent covering an orthopedic nail used in reconstructing humerus fractures. After a jury verdict of infringement, the district court ordered a permanent injunction. That pre-eBay ruling was subsequently vacated by the Federal Circuit because the lower court did not specifically consider the traditional four-factor test for injunctive relief. On remand, the district court again granted the permanent injunction. That permanent injunction is affirmed here on appeal.
In eBay, the Supreme Court held that the traditional four factors of equitable relief must be considered before granting injunctive relief in a patent infringement case. However, if a district court considers the requisite factors, the Federal Circuit will only vacate if they find an “abuse of discretion.”
Irreparable Harm and Lack of Remedy at Law: The first two factors of (1) irreparable harm caused by continued infringement and (2) inadequate remedies available at law almost entirely overlap. The court easily considered those factors together.
Acumed had previously licensed the patents to other manufacturers — perhaps indicating that money could be sufficient to compensate for the infringement. However, the district court distinguished the prior licenses based on the identities of the past licensees and Acumed’s more recent “experience in the market.” The Federal Circuit found no abuse of discretion — noting that “[a] plaintiff’s past willingness to license its patent is not sufficient per se to establish lack of irreparable harm if a new infringer were licensed.”
The Jury had awarded lost profit damages, and Acumed suggested that fact indicates that future harms would cause irreparable harm (or at least more than what would be compensated by a reasonable royalty). On appeal, the Federal Circuit did not dispute (or explicitly affirm) this argument. However the court did note that “[t]he essential attribute of a patent grant is that it provides a right to exclude competitors from infringing the patent.”
Balance of Hardships: For the third factor – balancing the hardships – Stryker argued that its customers (who need their arms fixed) would suffer under an injunction. On appeal, the Federal Circuit rejected that argument as a matter of law — holding that the balancing factor “is only between a plaintiff and a defendant, and thus the effect on customers and patients alleged by Stryker is irrelevant.” Under this construct of the balancing factor, the patentee will usually win — especially when applying the Windsurfing holding that “One who elects to build a business on a product found to infringe cannot be heard to complain if an injunction against continuing infringement destroys the business so elected.”
Public Interest: The patentee must show that the public interest is “not dissereved by an injunction.” Here, Stryker argued that the Acumed product was lower quality and that the arm bone repair would lead to increased morbidity. The district court did not find that public health argument persuasive and the Federal Circuit agreed that “the court was within its discretion to conclude that the public interest was not disserved by an injunction.”
Permanent Injunction Affirmed
Notes:
- The Jury found the infringement “willful.” That fact was not discussed in the eBay analysis.
- This case follows the conventional wisdom that the courts will continue to grant permanent injunctions against competitors who infringe.
Federal Circuit affirms permanent injunction in face of prior license agreements
Acumed LLC v. Stryker Corp. (Fed. Cir. 2008)
In 2004, Acumed sued Stryker for infringing a patent covering an orthopedic nail used in reconstructing humerus fractures. After a jury verdict of infringement, the district court ordered a permanent injunction. That pre-eBay ruling was subsequently vacated by the Federal Circuit because the lower court did not specifically consider the traditional four-factor test for injunctive relief. On remand, the district court again granted the permanent injunction. That permanent injunction is affirmed here on appeal.
In eBay, the Supreme Court held that the traditional four factors of equitable relief must be considered before granting injunctive relief in a patent infringement case. However, if a district court considers the requisite factors, the Federal Circuit will only vacate if they find an “abuse of discretion.”
Irreparable Harm and Lack of Remedy at Law: The first two factors of (1) irreparable harm caused by continued infringement and (2) inadequate remedies available at law almost entirely overlap. The court easily considered those factors together.
Acumed had previously licensed the patents to other manufacturers — perhaps indicating that money could be sufficient to compensate for the infringement. However, the district court distinguished the prior licenses based on the identities of the past licensees and Acumed’s more recent “experience in the market.” The Federal Circuit found no abuse of discretion — noting that “[a] plaintiff’s past willingness to license its patent is not sufficient per se to establish lack of irreparable harm if a new infringer were licensed.”
The Jury had awarded lost profit damages, and Acumed suggested that fact indicates that future harms would cause irreparable harm (or at least more than what would be compensated by a reasonable royalty). On appeal, the Federal Circuit did not dispute (or explicitly affirm) this argument. However the court did note that “[t]he essential attribute of a patent grant is that it provides a right to exclude competitors from infringing the patent.”
Balance of Hardships: For the third factor – balancing the hardships – Stryker argued that its customers (who need their arms fixed) would suffer under an injunction. On appeal, the Federal Circuit rejected that argument as a matter of law — holding that the balancing factor “is only between a plaintiff and a defendant, and thus the effect on customers and patients alleged by Stryker is irrelevant.” Under this construct of the balancing factor, the patentee will usually win — especially when applying the Windsurfing holding that “One who elects to build a business on a product found to infringe cannot be heard to complain if an injunction against continuing infringement destroys the business so elected.”
Public Interest: The patentee must show that the public interest is “not dissereved by an injunction.” Here, Stryker argued that the Acumed product was lower quality and that the arm bone repair would lead to increased morbidity. The district court did not find that public health argument persuasive and the Federal Circuit agreed that “the court was within its discretion to conclude that the public interest was not disserved by an injunction.”
Permanent Injunction Affirmed
Notes:
- The Jury found the infringement “willful.” That fact was not discussed in the eBay analysis.
- This case follows the conventional wisdom that the courts will continue to grant permanent injunctions against competitors who infringe.