Tag Archives: Licenses

Subsidiary’s Lost Profits Do Not Translate to Lost Profit Damages for Parent Patent Holder

Damages, Patent, Patent Cases 2008,

PatentLawPic327Mars, Inc. v. Coin Acceptors, Inc. (CoinCo) (Fed. Cir. 2008)

Way back in 1990, Mars sued CoinCo for patent infringement — asserting two patents covering technology for authenticating coins inserted into a vending machine. Eighteen years later, the parties are still battling over damages.

Lost Profits: In this decision, the CAFC affirmed that the Mars corporate structure (designed to avoid certain taxes) eliminated the company’s ability to recover damages under a “lost profits” theory.  Usually, lost profits are only available when a patentee is a market competitor. Mars itself has never made vending machine coin changers. However, its wholly owned subsidiary, MEI, did operate vending machines and licensed the patents on a non-exclusive per-use basis.  Although it was a wholly owned subsidiary, the court found that MEI’s provable lost profits due to the CoinCo infringement did not translate to lost profits for the patentee itself (Mars).  Of particular importance was the license structure between MEI and Mars that called for a straight per use license rather than a license based on a measure of profits.  Rather, lost profits require a showing that the patent holder itself had lost profits.

This decision can be seen as a continuation of the 2004 Poly-America case where the court held that the patentee could not recover lost profits for damages felt by a sister corporation. Lost profits damages are usually preferred to damages calculated as a reasonable royalty because the lost profit calculation typically results in a larger number.

PatentLawPic328Standing: The court also ruled on standing issues. (1) Prior to 1996, MEI had no standing to sue for itself because it was only a non-exclusive licensee. (2) In 1996 Mars transferred ownership to MEI — thus, at that point Mars had no standing to sue for any subsequent infringement.

Curing standing: In patent cases, standing is typically determined at the point that a claim is filed. Here, we have a seeming loss of standing. In the 2005 Schreiber decision, the CAFC held that a “temporary loss of standing during patent litigation can be cured before judgment.” Despite a half-hearted attempt, the court found that Mars had not properly cured its standing because MEI did not transfer complete ownership back to Mars.

Cornell wins $184 Million in Damages for Past Infringement by HP

Damages, District Court, Inventors, Patent, Patent Cases 2008,

Federal Circuit Judge Randall Rader has been sitting by designation as a district court judge in the Northern District of New York.  His case is an epic patent battle between Cornell University and Hewlett-Packard (HP), and the jury trial recently concluded with an $184 million calculated as 0.8% of HP’s $23 Billion in sales.

The patent — No. 4,807,115 — issued in 1989 and expired during the seven years of litigation. It is directed toward an internal computer messaging mechanism that boosts the function of multi-processor computers.

Interestingly, Cornell and HP had discussed a licensing agreement as early as 1988 (even before the patent issued). In 1997, Intel licensed the ‘115 patent for use in its Pentium Pro chips.

Unpublished Thesis: In a pre-trial decision, Judge Rader denied Cornell’s motion in limine and allowed HP to show the jury an unpublished masters degree thesis as 102(b) prior art.  The court found the thesis publicly accessible because the thesis had been cited in a later article that was in the same area of technology as the issued patent (analogous art.).

“After weighing all the circumstances of accessibility, this court views as vitally important the citation of this scholarly work in the Tjaden-Flynn article.”

Inventor Rewards: Unlike most companies, universities generally offer a percentage royalty cut for its employee-inventors. Professor Torng, the inventor of the ‘115 patent, will reportedly receive 25% of the award (if it is ever paid). Torng has announced that he’ll only keep a few million and donate the rest (perhaps over $30 million) to charity.

The post-trial decisions and eventual appeal should be interesting.

Federal Circuit Contract Interpretation

License, Patent, Patent Cases 2008,

PatentLawPic308Lawler Mfg. v. Bradley Corp. (Fed. Cir. 2008)(nonprecedential)

In 2001, Lawler and Bradley settled a patent infringement lawsuit and entered into a contractual license agreement. Bradley was given the right to practice Lawler’s plumbing valve patents in exchange for a 10% royalty.  The license included a combination royalty provision. The royalty licensed parts sold in combination would be charged at a separate (likely lower) royalty rate. 

The dispute on appeal was whether a set of example combinations included in the contract limited the “combination” royalty rate to only a limited set. The particular contract provision read as follows:

“If a Licensed Unit is invoiced or shipped in combination in another product such as an emergency shower or eyewash, [then the combination rate applies.]”

De Novo Construction: Looking much like a claim construction opinion, the CAFC reviewed the contract language de novo (following Indiana law) and reversed the lower court interpretation. In particular, the court found that the “such as” language of the contract limited the combination royalty to only a limited set of combinations. The CAFC found its interpretation necessary to give meaning to the such as clause. As with Federal Circuit claim construction law, Indiana contract law has a preference for giving meaning and effect to all written terms.

“The question before us is whether that term, read in the context of the agreement, is restrictive, as Lawler urges, or merely explanatory, as the court found. We find that it is restrictive. “Such as” refers to items similar to what are recited rather than indicating that the recited items are just examples of what is covered by that provision. . . . The parties’ inclusion of the “such as” phrase … must either have been intended to provide some guidance as to the limited types of combinations that the parties contemplated … or to provide meaningless surplusage. Indiana law constrains us from finding the latter.”

Reversed and remanded.

In dissent, Judge Mayer saw the “such as” language as merely providing examples in much the same way that embodiments provide example implementations of an invention. “[E]mergency eyewashes and showers are examples of combination products, but they are not the only combination products covered by section 3.1 of the licensing agreement.”

First Sale Doctrine: Copyright & Patent

District Court, First Sale / Exhaustion, Patent, Patent Cases 2008,

PatentLawPic307In some ways, the Supreme Court case of Quanta v. LGE is a symbol of the ongoing struggle between property law and contract law.  With concepts like the first sale doctrine (and the rule against perpetuities), property law has typically operated to limit dead hand and downstream control over property rights.  These limiting doctrines are largely ignored in a freedom of contract regime.

Vernor v. Autodesk (W.D. WA 2008)

A federal copyright case last week landed on the side of property & the first sale doctrine.  The court denied summary judgment to Autodesk — finding instead that Vernor may well have a legitimate right to re-sell his copies of AutoCAD. Autodesk argues that he only holds a contractual license to use the software (via shrink-wrap license) and does not actually hold full property interests in the programs.

“[T]he transfer of AutoCAD packages from Autodesk to CTA was a sale with contractual restrictions on use and transfer of the software. Mr. Vernor may thus invoke the first sale doctrine, and his resale of the AutoCAD packages is not a copyright violation.”

In copyright law, the first sale doctrine is codified in statute — allowing the owner of a particular copy to resell that copy even if the owner had contractually agreed not to do so. 

“[T]he owner of a particular copy or phonorecord lawfully made under this title … is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.” 17 USC 109.

In patent law, the first sale doctrine – also known as patent exhaustion – has no statutory support. Rather, like the doctrine of equivalents, patent exhaustion is grounded in common law principles.  The Quanta case is fairly technical and could result in a narrow low-impact opinion. However, it is also quite possible that the Supreme Court will re-solidify the property concepts.  Expect a decision within the next few weeks.

Notes:

  • Patry and InternetCases have more details on the Autodesk case.
  • More on Quanta v. LGE.
  • Comment on Chain of Title: M. Slonecker: “For the sake of factual accuracy, AutoDesk “sold” the software to CTA. At a later date CTA auctioned off its assets, and Mr. Vernor was the winning bidder for the software program discs. With copies in hand, Mr. Vernor placed the discs he purchased at the auction on sale at eBay. Apparently AutoDesk is not pleased with this state of affairs and has been engaged in a running battle with Mr. Vernor about his eBay activities.”

Theory of Dependent Claims: Survey Results

Academic Studies, Articles and Publications, Claim Drafting Tips, Patent, , , ,

Patent claims define the scope of an invention much like metes and bounds define real property boundaries or a statute delineates the difference between criminal and non-criminal activity.  Often, patent applicants submit a series of claims all directed toward the same invention. Various independent claims allow an applicant to focus on various aspects of the invention. These broad aspects may be directed to various nodes of a larger system or regions of a compound, processes for creating or using various elements, etc.  Dependent claims by definition add additional limitations. Thus, for instance disputed claim 1 and 2 from the recent Lovanex dispute reads as follows:

1. A heterogeneous intimate admixture of sulfated heparinic polysaccharides … consisting essentially of

from 9% to 20% of polysaccharide chains having a molecular weight less than 2,000 daltons
from 5% to 20% of polysaccharide chains having a molecular weight greater than 8,000 daltons, and
from 60-86% of polysaccharide chains having a molecular weight of between 2,000 and 8,000 daltons ….

2. The heterogeneous polysaccharide admixture as defined by claim 1, comprising less than 2% of dermatan sulfate.

Claim 2 is interpreted to include all the limitations of claim 1 with the additional limitation of “less than 2% of dermatan sulfate.” See 37 CFR 1.71(c).

Earlier this week, I polled Patently-O readers on why they file dependent claims and received just over 1000 responses. (Listed below).

Theory of Dependent Claims            
Why do you file dependent claims?             
  Percent of Responses  
Answer Options Strongly Agree Mostly Agree Neither Agree nor Disagree Mostly Disagree Strongly Disagree Rating Average
Dependent claims are backup in case the independent claim is rejected in prosecution. 59% 34% 4% 2% 0%        1.51
Dependent claims are backup in case the independent claim is found invalid in litigation. 59% 31% 6% 3% 1%        1.56
Claim Differentiation: The dependent claims expand or alter scope of other claims. 47% 37% 8% 6% 3%        1.82
Dependent claims focus on particular commercial embodiments to make infringement easier to explain to a jury. 29% 44% 21% 4% 2%        2.07
I primarily include dependent claims with nonobvious additional limitations.  19% 45% 25% 9% 1%        2.29
I was taught to draft dependent claims. 26% 34% 26% 8% 7%        2.35
USPTO fees: Patent office does not charge extra for first twenty-claims. 26% 34% 24% 9% 7%        2.36
Dependent structure better supports foreign filing. 7% 19% 58% 11% 3%        2.84
Dependent claims are easier to draft and manage than independent claims. 6% 23% 37% 23% 11%        3.08
Client demands a certain number of claims. 6% 16% 29% 25% 23%        3.42
Dependent claims help avoid restriction requirements. 2% 13% 39% 31% 15%        3.44
A longer application is more valuable. 2% 13% 29% 34% 22%        3.60
          answered question 1029
          skipped question 0

Responses were also allowed to add additional reasons in the comment section. I have compiled a few of those individual responses below.

  • Drafting Process: A few responses commented on the iterative process of drafting a patent. For some, drafting the dependent claims helps refocus and redefine potentially problematic terms from the independent claims. For many, the dependent claims also serve as a guide for fully drafting the specification.
  • Prosecution Process: Some responses proposed that the dependent claims are helpful during prosecution for several reasons. First, there is a perception amongst patent practitioners that examiners read and consider the claim-set before looking at the actual specification. For that reason, the claims should be considered as a way to teach the examiner about the features and purpose of the invention.  For some, obvious limitations in a dependent claim are useful in that regard to show the examiner an intended use (practical embodiment) of the invention.  For those who see patent prosecution as a negotiation, a series of narrowing dependent claims speed up the the process — the applicant and examiner need only agree upon how narrow the claims need be.  Some propose at least some dependent claims being “super narrow” to serve as a “foot in the door” to increase the likelihood that there is at least some patentable subject matter.  Once you have agreed that a patent will issue, it may be easier to debate the scope of the eventual claims. On a practical note, the existence of dependent claims means that an applicant can get to a post-final rejection allowance without filing a request for continued examination. These practical concerns are important considering that the vast majority of patent applicants amend their claims during prosecution.
  • Claim Differentiation: Most practitioners agreed that the claim differentiation benefit of dependent claims is important. The doctrine encourages courts to consider that each claimed element covers something different than the others. Pushing that line, a typical reasoning is that two or more dependent claims providing alternative implementations of a term from an independent claim will help ensure that the independent claim element is not limited to a single embodiment. Some folks quibbled with my statements regarding dependent claims “expanding scope” of other claims and instead used a more PC version of “aiding construction.”  It is important to realize that the originally filed dependent claims also form part of the specification and can thus help overcome enablement and written description hurdles.
  • Appeasing Clients: Many inventors see their invention narrowly — as their particular embodiment. Dependent claims provide an easy way to satisfy the inventor’s desire to claim their invention without limiting legal rights. On this “politics” side — dependent claims also give reason to add joint inventors, which may be good for office politics. “An invention may only warrant one independent claim embodiment, but many clients like to see many claims. They believe the more claims they have the stronger the patent and that they are getting value for there money.So you add them, e.g., a blue widget, a red widget. It is like chicken soup for a cold, it can’t hurt.”
  • Ease of Analysis: “Filing dependent claims rather than only independent claims makes it much easier for several parties (attorneys prosecuting the application, examiners and the BPAI examining the patent, attorneys analyzing the issued patent, courts analyzing the issued patent) to more readily evaluate the differences and similarities of claims.”  Others noted that it is also useful as a way for potential licensees to know that the proposed product is literally and explicitly covered. For some patent owners, this “ease of analysis” is actually a negative. (Try to read NTP’s $600,000,000 claims). A long claim-set makes it more likely that a potential defendant will easily cave rather than pursue an expensive invalidity / noninfringement study.
  • Capture “minor inventions”: Dependent claims allow an applicant “to capture improvements to the invention that are not important enough to justify a separate application, but that one would want to avoid having a competitor step in and patent something similar.”
  • Tradition: There is nothing wrong with tradition and custom. It helps ensure that we’re all on the same page.  For many the 3/17 rule of independent/dependent claims serves as a default rule that can be adapted for unique circumstances.
  • International: Internationally, patents use fewer independent claims than in the US. One European attorney made the following comment: “Multiple independent claims in the US style cause major headaches and costs in Europe, so one good independent, with well gradated dependents, is the best solution for me.”
  • I will attach the full comments once reformatted.

Finisar v. DirecTV: Parallel Claim Construction and Construing the Prior Art

Patent, ,

Finisar v. DirecTV (Fed. Cir. 2008)

After a jury found that DirecTV willfully infringed Finisar’s information broadcast patent, the Eastern District of Texas court (Judge Clark) awarded over $100 million to the patentee for past damages. Instead of an injunction to stop the infringement, Judge Clark also ordered a compulsory license rate for any future infringement.

Parallel Claim Construction: On appeal, the CAFC first reversed the construction of the claim term information database – leading to an order for a new trial on both infringement and validity.  The same patent term had also been later construed by a N.D. Cal. district court in Comcast v. Finisar, and “in the interest of uniformity and correctness” the appellate panel consulted the analysis of both courts.  Here, the CAFC essentially used the Comcast decision as an amicus brief arguing for a particular result. In its decision, the appellate panel praised the Comcast court for its rejection of the DirecTV claim construction.

It is appropriate to consider here what a district court should take away from the CAFC’s process – especially with respect to the court’s stated goal of uniformity. This decision leaves execution of that goal squarely in the hands of the appellate court. In this case, the California district court is encouraged to avoid uniformity and instead focus on contrasting its decisions from those of other district courts interpreting the same terms.  When several courts are deciding the scope of identical property rights in parallel infringement actions, there is some value in having a uniform interpretation or outcome. The practical implication of this case, however, is that a district court looking at a patent that was previously construed should not consider the value of uniformity in its decision.

Construction of Prior Art: A concept ripe for further analysis is the construction of prior art — a job that is currently left to the jury. Here, the court found that the database structure textbook reference should be interpreted based on “an understanding of English grammar and usage.” Ultimately, the court decided the anticipation issue based on the comma placement in a paragraph of the prior art book. Interestingly, although the court initially terms its interpretation a “stretch” in the end its interpretation of the facts means that no reasonable jury could hold otherwise.  (Based on its grammatical holding, one claim was held invalid and the others must be revisited by a jury).

Willful Infringement: The CAFC also reversed the willfulness decision — finding that there is no requirement for an opinion of counsel, and that an opinion of counsel can appropriately ignore validity if it sufficiently addresses noninfringement.

 Notes

  • Read Part II of this decision later today.

Implied License: Purchases from Licensed Manufacturer Come with Implied License to Practice the Invention (Regardless of Non-Infringing Uses)

Patent,

Zenith Electronics v. PDI Communications (Fed. Cir. 2008) [Part II] [Read Part I discussing anticipation]

Zenith’s patented remote TV control system is designed for hospital use. The invention includes both a remote “pillow speakers” and a TV receiver. Zenith accused PDI of infringing even though PDI had purchased Zenith-authorized remote pillow speakers from licensed manufacturers. PDI had, however, purchased off-brand TVs and receivers – Zenith wanted its own TVs to be used.

On summary judgment, the district court found that PDI could not infringe Zenith’s patent because the defendant was practicing the invention under an implied license from the patentee. On appeal, the CAFC affirmed.

Implied License: Under the first sale doctrine, a license to practice an invention will be implied when the patentee (or its licensee) sells a device that has “no non-infringing uses” under circumstances that “plainly indicate that the grant of a license should be inferred.” The no non-infringing use requirement is lifted when the patentee expressly licenses a manufacturer to sell its products for infringing uses. (Jacobs v. Nintendo).

Here, PDI purchased the pillow speakers from manufacturers expressly authorized to sell products for uses that would infringe the Zenith patent. Thus, potential non-infringing uses are “irrelevant” to the question of implied license. Interestingly, the Zenith licenses include aspirations that Zenith TV-equipment will be used. Those aspirations however are “simply the seller’s hope or wish, rather than an enforceable restriction.”

“We agree with the district court that customers who purchase pillow speakers from [the licensed manufacturers] Curbell, MedTek, and Crest obtain an implied license to use those pillow speakers in combination with any compatible television—not just Zenith televisions. That implied license is derived from the express licenses in place between Zenith and the manufacturers.”

Notes

  • This situation is similar to that of Quanta, now pending at the Supreme Court. However, in that case, the license made explicit restrictions.
  • This decision also is an interesting parallel to the recent DataTreasury decision. In that case, the CAFC decided that the restrictive burden (a requirement to arbitrate disputes) was not actionable to a subsequent purchaser. Here, the CAFC decided that the beneficial license to practice does automatically extend to the purchaser of a patented good. This is like the law of real covenants where the benefit of a covenant flows to the subsequent purchaser much more easily than the burden. (There is a difference here between purchasing a patent in DataTreasury and purchasing a patented good in Zenith.)

Arbitration Agreement Does Not Encumber Patent

Patent

DataTreasury v. Wells Fargo (and 50+ other banks) (Fed. Cir. 2008)

In 2006, DataTreasury obtained its electronic check clearing patents from WMR e-Pin — a company that had previously licensed its patents to Wells Fargo. The license agreement included a provision requiring arbitration of disputes.

Soon after DataTreasury obtained the patents, it sued Wells Fargo and more than fifty other major banking institutions for patent infringement. On interlocutory appeal here, is the district court’s refusal to stay litigation pending arbitration. DataTreasury argues that it is not bound by the arbitration agreement.

On appeal, the CAFC confirmed that the subsequent purchaser, DataTreasury, is not bound by the arbitration clause. Applying Fifth Circuit interpretation of the FAA and Minnesota law, the appellate panel found that the arbitration policy does not operate as a servitude upon the property. Rather, the arbitration agreement it is a personal contract binding only the original parties. “[R]equiring a non-signatory to arbitrate solely on the basis of an arbitration clause in a license agreement between signatory parties would be inconsistent with basic principles of contract law and the Federal Arbitration Act.”

The case is remanded to Judge Folsom (E.D.Tex.) to resolve the dispute.

CAFC Overturns Jury Verdict of Non-Obviousness Because Combination Yields Predictable Results

Patent, ,

Woodstream-aAgrizap v. Woodstream Corp (Fed. Cir. 2008)

Agrizap holds a patent covering a method of electrocuting rats and gophers. The product is sold under the trade name “Rat Zapper.”  Woodstream (maker of the Victor rat trap) first licensed the product then began manufacturing its own version.
 
The jury found the patent nonobvious and held Woodstream liable for both infringement (and for fraud based on its actions during the license.) In a post-verdict decision, the district court granted JMOL of non-infringement.

On appeal, the CAFC (Judge Moore) zeroed-in on the question of obviousness:

“[A]s the ultimate conclusion of obviousness is a question of law, it remains our duty as the appellate court to ensure that the law has been correctly applied to the facts. . . . In other words, we review de novo the conclusion on obviousness . . . [keeping in mind] that ‘[t]he combination of familiar elements according to known methods is likely to be obvious when it does no more than yield predictable results.’” (Quoting KSR v. Teleflex, 127 S. Ct. 1727, 1739 (2007)).

Here, the CAFC found, as a matter of law, that Agrizap’s own commercial product (the “Gopher Zapper”) rendered the claimed invention obvious. The only difference between the two was the type of trigger mechanism, and the Rat Zapper’s claimed electrical switch was already well known in the cattle-prod art.

Secondary Considerations: When faced with a mere combination of familiar elements, even strong secondary evidence of nonobvious will not save the application. Here, Judge Moore took as true “the commercial success of the Rat Zapper, copying by Woodstream, and a long felt need in the market for electronic rat traps.” However, that evidence is “insufficient to overcome the overwhelming strength of Woodstream’s prima facie case of obviousness.”

Notes:

  • Judges Bryson, Moore, and Wolle (S.D.Iowa).
  • This case should be contrasted with Ortho-Mcneil v. Mylan , also decided this week. (Judges Michel, Rader, and Linn).
  • Perhaps a strategic misstep by Agrizap?: During prosecution, the PTO made the identical argument as that made by Judge Moore. The only difference was that the PTO examiner rejected the Rat Zapper patent application based on the “Gopher Zapper” patent instead of the commercial product.  Instead of arguing around the asserted reference, Agrizap amended inventorship and filed a terminal disclaimer.  This left the Examiner’s rejection glaringly un rebutted when it turned out that the commercial embodiment (102(b) prior art) could not be swept away so easily. [See Patently-O discussion of whether to file a 131 declaration or argue over a reference.]

Patently-O Bits and Bytes No. 21

Patent
  • ScreenShot041Disclose Disclose Disclose: APJ Richard Lebovitz argues (on his own) that scientific researchers should be required to disclose potential patent rights prior to publication of related research as part of the conflict-of-interest review. [6 Nw. J. of Tech. & Intell. Prop. 36].  In his study of Science and Nature articles, Lebovitz found that “almost one-third” of the research articles were associated with one or more patent filings.
  • Compulsory Licenses: Thailand plans to continue its plan of paying low compulsory license rates for patents covering important cancer drugs. In response, Novartis has proposed to offer Gleevec for free, but only to Thai patients that qualify as poor. [Noonan]
  • More Like Property: A major point of the Bessen & Meurer book is that the patent system can be improved by making patents work more like property. Should we work toward a system where patent rights are more predictably valid; where patent scope is more easily discernable; and where fragmented ownership of overlapping patent rights does not block further development?
  • Patent Reform: IPO reports that the “massive” Patent Reform Act of 2007 will likely receive senate floor attention in April or May.  According to the organization: “Patrick Leahy (D-Vermont) appears intent on moving the bill ahead even though it is unclear whether enough Senators will support it to break holds placed on it by some Senators.  Claims made every day by lobbyists that Leahy has or does not have the 60 votes required to cut off debate and pass an amended bill are speculation, because the amendments are not known.  Pronouncements that the bill is dead this year are premature.”

Using Preliminary Injunction Decisions to Seek Immediate Appeal

Patent, ,

Patent.Law065University of California v. Dakocytomation California (Dako) (Fed. Cir. 2008)

Plaintiffs UC and Abbott are the owner and licensee of a set of patents covering methods of identifying chromosomal abnormalities.  On appeal, the parties question whether the lower court improperly denied preliminary relief joined with an interlocutory appeal of summary judgment of non-infringement of some claims. 

As in the recent Chamberlain Group decision, the appeal of preliminary relief offered a method for the parties to obtain an interlocutory judgment on claim construction.

District Court Obviousness Trouble: On two separate occasions, the district court denied preliminary relief to the patent holder based on the likely invalidity of the asserted patents. First, the district court held that the patent was likely invalid based because the parent application was invalidating prior art. The court withdrew that analysis after realizing that the asserted patent claimed priority to the filing date of the parent. Next, the district court found the patent likely invalid for obviousness-type double patenting. That reasoning was also withdrawn by the district court after realizing that the patentee’s terminal disclaimer cured the double patenting defect.

Nonetheless, the lower court’s decision in favor of the defendant stuck because the CAFC found that the prosecution history warranted a construction of the claims that was narrow enough to allow Dako to avoid infringement.

Doctrine of Equivalents: In a decision to be contemplated further, the CAFC also decided that a narrowing amendment made during prosecution does not preclude application of the doctrine of equivalents because “the narrowing amendment was only tangential to the accused [] equivalent.”

Judge Prost dissented from the DOE holding and argued that the amendment was absolutely related to the accused equivalent.

Patently-O Bits and Bytes No. 17

Patent
  • Increasing Complexity: The House Judiciary Subcommittee on IP is holding its PTO oversight hearing on Feb 27 at 1:30 pm. These graphs, originally from Patently-O, will be used by POPA when demanding enhanced examiner pay.
  • Judicial Conference: The CAFC’s Judicial Conference is scheduled for May 15, 2008 in DC at the Grand Hyatt. INFO.
  • Seagate: The Supreme Court has declined to grant certiorari in the Seagate decision. That decision has eliminated much of the need for a formal opinion of counsel prepared for litigation.  Expect a study next summer showing treble damages in severe decline.
  • Supreme Court Quanta: Quanta is awaiting decision. This decision may follow antitrust regulation and inject more economic analysis into decisions of whether particular license agreements are acceptable.
  • Supreme Court Biomedical v. California: The U.S. Chamber of Commerce has filed an amicus brief supporting Biomedical Devices in its attempt to strip California of its immunity from patent infringement litigation.  For an unknown reason, the IP Bar associations have refused to provide any input on this case.
  • EPC 2000: The European Patent Convention has received its first major revision in 30 years. Nicholas Fox provides an excellent summary in book form for £25. Hat tip to Bill Heinze.

Issues With Employee Assignment Agreements

Patent,

PatentLawPic207DDB Tech v. MLB Advanced Media (Fed. Cir. 2008)

Mr. Barstow (head of DDB) was still an employee of Schlumberger when he invented his system for simulating a baseball game. As part of his employment agreement, Barstow assigned all rights to inventions relating to or resulting from Schlumberger business.  At the time, Schlumberger’s GC for software agreed that Barstow’s baseball software was his own personal work and not Schlumberger related. After DDB filed suit, MLB bought “any interest that Schlumberger had in the patents” along with a retroactive license.

The district court (Judge Yeakel) dismissed the case for lack of subject matter jurisdiction — finding that the baseball software invention fell within the employment agreement and that MLB is now the patent owner. DDB appeals.

Employee Assignment: Under the Texas law, the employment agreement creates an instant assignment as soon as a qualifying invention is created. Thus, if the patents “qualify” as within the employment agreement, then they were owned by employer regardless of any seeming waiver, estoppel, or statute of limitations. Those defenses could prevent enforcement of an agreement to assign, but do not negate an already consummated assignment.

The CAFC ordered the lower court to reopen discovery so that the parties could collect evidence on whether the baseball software invention fell within the scope of the employment agreement.

Notes:

  • Employees beware: Your employer likely owns your future inventions! Best practice for garage inventors is to obtain a written exception to the policy prior to inventing. Otherwise, you should obtain an assignment from the company.  Of course, this depends upon state law and whether the agreement includes the magic language: “[The employee] does hereby grant and assign.” If Barstow had been employed at the University of Missouri, he might have won because the employment agreement only requires the employee “upon request [to] assign … all domestic and foreign rights.”  For prolific home inventors, this difference may be enough to warrant a job change.
  • Loyalty?: Not to pick on Schlumberger, but isn’t it odd that they chose to do business with MLB over their own former employee…
  • Patently-O Discussion of district court case.
  • This case was handled by my former firm, MBHB LLP. However, I was in Boston by the time that they took over the litigation. 
  • Recordation of Assignment: A reader suggested that the patent recordation statute (35 U.S.C. 261) be considered. If you remember 1L property, the patent recordation statute is a notice statute with a three-month grace period.  Thus, a subsequent assignee of a patent will hold title over a prior assignee if two conditions are met: (1) the prior assignee did not record in time (which would give constructive notice); and (2) the subsequent assignee was “without notice” of the prior assignment. The timing is no question here — Schlumberger did not record until after DDB had already sued. The only issue then is whether DDB had notice of the prior assignment.
  • Notice of Prior Assignment: Under Federal Circuit law, a subsequent assignee can have notice of a prior assignment based on actual notice, constructive notice, or even inquiry notice under the principles of equity. Unfortunately, the leading CAFC case on this issue is non-precedential, Katz v. Lear Siegler, 1993 US App Lexis 17507 (Fed. Cir. 1993), and at least two law firms have been publicly chastised for citing the case to the CAFC.

Monsanto’s Roundup Ready GMO Patents Convincingly Upheld on Appeal (Again)

Patent

Monsanto v. David (Fed. Cir. 2008)

Once again, the CAFC has upheld Monsanto’s Roundup Ready Soybean patents and the company’s strategy of enforcing those patents against farmers.  The facts here are similar to the McFarling case. David  – is a big-time soybean farmer – was found to have saved a portion of his soybean seeds and planted them the following year.  David also signed Monsanto’s technology agreement, in which farmers agree not to save and re-plant.

Here, the CAFC refused to reexamine the question of whether plant genes are patentable under Section 101 and J.E.M Ag Supply. Rather, the court is precedentially bound by the McFarling and other cases to find the subject matter appropriately patentable. David’s “inconsistent testimony” allowed the court to also agree that no clear error had been made in the lower court’s factual findings in favor of Monsanto.

The court also agreed that this is an exceptional case: “It is a case of a farmer with apparent disregard for patent rights, license agreements, and the judicial process. With that in mind, as well as the record evidence of David’s inconsistent testimony, we agree with the district court that this is an “exceptional” case.” Thus affirming the award of costs and fees.

Notes:

 

 

 

CAFC Holds Hard Line Against Mandamus Actions

Patent

Misc. Docket No. 854 (in re Roche Molecular Sys.) (Fed. Cir. 2008)

Stanford sued Roche for infringement of its patented method of monitoring and treating HIV/AIDS. Roche argued that it actually held license to the patents. However, ND Cal District Court Judge Patel denied Roche’s motion for summary judgment on the licensing issue and instead held those claims barred by a statute of limitations.

Roche demanded a writ of mandamus – but was denied.  The majority panel noted the extra special nature of mandamus appeals: noting that neither “reversible error”, “hardship, inconvenience, [nor] an unusually complex trial” provide a basis for mandamus. Here, the court found that Roche could not prove the necessary indisputable “right” to the writ and thus must wait until a final decision for its appeal.

Judge Newman dissented — arguing that the number of serious errors made by the district court level should not be overlooked.

IEEE Standards: FTC Finds Patent Enforcement “Unfair Competition” Based on Patentee’s Prior Offers to License

Patent

PatentLawPic166Federal Trade Commission v. N-Data (FTC Complaint and Settlement 2008)

The FTC has announced both a complaint and settlement with the patent enforcement company N-Data. 

N-Data had purchased Patent Nos. 5,617,418 and 5,687,174 from a distressed company (Vertical Networks) who had received the patents from National Semiconductor.  Both patents related to NWay ethernet technology that has become an IEEE standard. 

An Encumbrance: National was interested in having its technology adopted as an IEEE standard. Consequently, prior to assigning away its patent rights, National wrote to the IEEE with a promise to “offer to license its NWay technology to any requesting party …. on a nondiscriminatory basis” for a one-time fee of $1,000. The evidence showed that each party in the chain of patent title were aware of those statements at the time of transfer.  Soon after the promise, IEEE adopted the NWay standard.

Enforcement: Despite the $1,000 license promise by its predecessor, Vertical (and subsequently N-Data) began enforcement proceedings — asking rather for a reasonable royalty totaling approximately $20 million per year.

FTC Complaint:  In a 3–2 decision, the five-member FTC voted to issue a complaint against N-Data’s activities under Section 5 of the FTC Act.  That section provides the Commission with authority to stop unfair methods of competition and deceptive commercial practices.  The Majority opinion particularly noted the problem of “lock-in”: “Respondent engaged in conduct that was both oppressive and coercive when it engaged in efforts to exploit licensees that were locked into a technology by the adoption of a standard.” 

This holding is notable because there is no finding that N-Data had monopoly power or any antitrust liability. Consequently, Chairman Majoras (writing in dissent) had difficulty finding any oppression.  Majoras likewise had difficulty characterizing the sophisticated corporate players on the IEEE committee as “victims.” “The novel use of our consumer protection authority to protect large corporate members of a standard-setting organization is insupportable.”

N-Data chose not to fight and has agreed to the majority findings.

Patently-O Bits and Bytes No. 5

Patent,
  • PatentLawPic158Majority Leader Harry Reid Plans to Move Quickly on Patent Reform: In the first work period of the Senate, Reid intends to move on patent reform (after handling the defense appropriations bill and economic stimulus). “Once we work these issues out, time permitting, we will also turn to two other priorities in this first work period: patent reform and an energy package.”  Perhaps appropriately, Reid’s concept of invention is tied-up with entrepreneurs: “On patent reform, we must carefully strike the right balance with a bill that promotes rather than blocks innovation from enterprising entrepreneurs.”  In Reid’s view, the bills should have become law in 2007: “If not for the obstruction of just a few Senators, we would have passed these bills last year. I am hopeful that the overwhelming majority of Senators – Democrats and Republicans alike – will have their voices heard this year.” [Zura]
  • ScreenShot024Comments for Japanese Patent Office: The JPO recently established a Policy Committee and have a schedule to recommend JPO policy changes in a report in April/May 2008. The Committee has generated broad goals of (1) a global system; (2) a predictable system; and (3) a system that promotes both creation and utilization. Comments on the goals and potential solutions are requested by Feb 25 (Japan time). [More Info] [Committee Broad Goals and Plan]
  • PatentLawPic157Patent Bar Exam: Patent Agent Alex Nix has created an excellent wiki to help those studying for the Patent Registration Exam: www.PatentBarQuestions.com. Learn and Contribute!

To the Congress of the United States: I am transmitting to the Congress today a legislative proposal entitled, the “National Productivity and Innovation Act of 1983.” The bill would modify the Federal antitrust and intellectual property laws in ways that will enhance this country’s productivity and the competitiveness of U.S. industries in international markets. As you know, one of the most important goals of my Administration has been to revitalize the competitiveness and productivity of American industry. Tax cuts proposed by my Administration and enacted during the 97th Congress have greatly stimulated economic activity. In addition, our efforts to rationalize Federal rules and regulations have significantly enhanced the efficiency of our economy. For the first time in over a decade, there exists the foundation for a period of strong and sustained economic growth. The ability of the United States to improve productivity and industrial competitiveness will also depend largely on our ability to create and develop new technologies. Advances in technology provide our economy with the means to produce new or improved goods and services and to produce at lower cost those goods and services already on the market. It is difficult to overstate the importance of technological development to a strong and healthy United States economy. It has been estimated that advances in scientific and technological knowledge have been responsible for almost half of the increase in this country’s labor productivity over the last 50 years. New technology also creates new jobs and gives us an advantage in world markets. For example, the U.S. computer industry, which was in its infancy just a short time ago, directly provides jobs for about 830,000 Americans and is a leader in world markets. The private and public sectors must spend a great deal of time, money, and effort to discover and develop new technologies. My Administration has moved to bolster research and development (R&D) in the public sector by proposing in our 1984 budget to increase Federal funding of R&D by 17 percent, to $47 billion. However, it is vital that our laws affecting the creation and development of new technologies properly encourage private sector R&D as well. The Economic Recovery Tax Act of 1981 provides a 25 percent tax credit to encourage firms to invest in additional R&D. Our economic program has helped reduce inflation and interest rates and thus has lowered substantially the cost of conducting research. The antitrust and intellectual property laws also have a very significant effect on private investment in R&D. The antitrust laws are designed to protect consumers from anti-competitive conduct. While the economy generally benefits most from vigorous competition among independent businesses, the antitrust laws recognize that in some areas, like the creation and development of technology, cooperation among producers, even competitors, can actually serve to maximize the well-being of consumers. The intellectual property laws, for example, those dealing with patents and copyrights, also serve to promote the interests of consumers. The promise of the financial reward provided by exclusive rights to intellectual property induces individuals to compete to create and develop new and useful technologies. After reviewing the effect of the antitrust and intellectual property laws on the creation and development of new technologies and after consultations with key members of Congress, I have concluded that the antitrust laws can be clarified in some respects and modified in other respects to stimulate significantly private sector R&D. This can be done while maintaining strong safeguards to protect the economy against collusive actions that would improperly restrict competition. The National Productivity and Innovation Act of 1983, which embodies those changes, is a package of four substantive proposals that deals with all phases of the innovation process. Title II of the bill would ensure that the antitrust laws do not unnecessarily inhibit United States firms from pooling their resources to engage jointly in procompetitive R&D projects. Joint ventures often may be necessary to reduce the risk and cost associated with R&D. So long as the venture does not threaten to facilitate price fixing or to reduce innovation, such ventures do not violate the antitrust laws. Nevertheless, the risk remains that some courts may not fully appreciate the beneficial aspects of joint R&D. This risk is unnecessarily magnified by the fact that a successful antitrust claimant is automatically entitled to three times the damages actually suffered. Title II would alleviate the adverse deterrent effect that this risk may have on procompetitive joint R&D ventures. This title provides that the courts may not find that a joint R&D venture violates the antitrust laws without first considering its procompetitive benefits. In addition, Title II provides that a joint R&D venture that has been fully disclosed to the Department of Justice and the Federal Trade Commission may be sued only for the actual damage caused by its conduct plus prejudgment interest. This combination of changes will encourage the formation of procompetitive joint R&D ventures. And unlike some other proposals currently before Congress, it will do so with the minimal amount of bureaucratic interference in the functioning of those ventures. If we are to assure that our laws stimulate investment in new technologies, however, it is not enough merely to correct the adverse deterrent effect the antitrust laws may have on procompetitive joint R&D. Rather, we must also assure that the antitrust and intellectual property laws allow — indeed encourage — those who create new technologies to bring their technology to market in the most efficient manner. Only in this way can those who invest their time, money, and effort in R&D be assured of earning the maximum legitimate reward. Titles III and IV recognize that very frequently the most efficient way to develop new technology is to license that technology to others. Licensing can enable intellectual property owners to employ the superior ability of other enterprises to market technology more quickly at lower cost. This can be particularly important for small businesses that do not have the ability to develop all possible applications of new technologies by themselves. However, the courts have not always been sympathetic to these procompetitive benefits of licensing. Title III would prohibit courts from finding that an intellectual property licensing arrangement violates the antitrust laws without first considering its procompetitive benefits. In addition, the title would eliminate the potential of treble damage liability under the antitrust laws for intellectual property licensing. Although those who suffer antitrust injury as a result of licensing would still be able to sue for their actual damages plus prejudgment interest, Title III would minimize the deterrence that the antitrust laws currently may have on potentially beneficial licensing of technology. Title IV would also encourage the procompetitive licensing of intellectual property. Pursuant to this title, the courts may refuse to enforce a valid patent or copyright on the ground of misuse only after considering meaningful economic analysis. Finally, Title V will close a loophole in the patent laws that has discouraged investment in efficiency-enhancing technologies. Creation of and improvements in the process of making products can be just as important as creating and improving the product itself. Currently, if someone uses a United States process patent outside this country without the owner’s consent and then imports the resulting product into the United States, the importer is not guilty of infringement. Title V of the bill would close this loophole so that owners of process patents can earn their rightful reward by preventing the unauthorized use of their technology. We must not delay making the necessary changes in the law to encourage the creation and development of new technology, to increase this country’s productivity, and to enable our industries to compete more effectively in international markets. We must act now. I therefore urge prompt consideration and passage of this legislative proposal. Ronald Reagan The White House, September 12, 1983. —–

Innogenetics: Forward Looking Damages Approved

Patent,

ScreenShot002The injunction decision in Innogenetics deserves a second look. In that case, the Federal Circuit closely examined the Wisconsin District Court’s award of both injunctive relief and $1.2 million in forward looking damages.

The $7 million total damage award was divided into two parts by the jury: a $5.8 million “market entry fee” and a $1.2 million “ongoing royalty payment.”*  This award “exactly tracked” the damage award proposed by the patentee’s expert and also fit within the jury instructions, which called for “both an up-front payment and an ongoing royalty payment.” 

In addition to receiving a lump-sum to cover ongoing royalties, the District Court also awarded an injunction to stop ongoing infringement.  On appeal, the CAFC rejected this double-dipping. In her opinion, however, Judge Moore, was careful to cast the reversal in the language of eBay v. MercExchange.  Thus, the appellate panel held that a patentee who asked for and received future licensing royalties has no standing to complain of irreparable harm.

The reasonable royalties awarded to Innogenetics include an up-front entry fee that contemplates or is based upon future sales by Abbott in a long term market. When a patentee requests and receives such compensation, it cannot be heard to complain that it will be irreparably harmed by future sales.

Although the court did not use the words, the rule here appears to be akin to that of equitable estoppel.  This is a simple case for the appellate panel because the patentee asked for the forward looking damages.  However, the panel also implicitly accepts forward looking damages as an adequate substitute for injunctive relief.  The collection of damages negates irreparable harm — the most important eBay factor.**

On remand, the CAFC also appears to have vacated the lump-sum future sale damages. Without discussion, the appellate panel ordered that the district court instead implement a compulsory license with a running royalty payment. The only clue to the court’s reasoning lies in Footnote 9, which notes that the shift to a running royalty would allow the district court to retain jurisdiction to “ensure the terms of the compulsory license are complied with.” 

Notes:

Quanta v. LG: Will the Supreme Court Clarify the Exhaustion Doctrine?

Patent,

Editorial and News by Charles R. Macedo, Joseph Casino, Michael Kasdan, and Howard Wizenfeld.

Today, for the first time in half a century, the Supreme Court heard oral argument on the extent to which a patentee can license its patents to different members of the same sales chain for the same product. [Transcript] In Quanta v. LG Electronics, the High Court heard arguments on whether a patentee can grant patent rights and at the same time contract around the exhaustion doctrine.  Further, the issue of whether patent exhaustion applies to method claims was also before the Court.  Charley Macedo attended the oral arguments to get a first hand impression of how the Supreme Court might deal with the issues related to patent exhaustion.

An interesting aspect of oral argument at the Supreme Court was the focus of the Justices on whether patent exhaustion is an issue of patent law, contract law, or antitrust law.  Justice Breyer’s questions appeared to suggest that, under contract law theories, a patentee should not be able to put a post customer restriction in a license because it would impose improper “equitable servitudes on chattel”.  He also suggested that placing such a restriction could violate antitrust law doctrines.  By contrast, Justice Roberts focused on whether exhaustion is a patent law or contract law doctrine.

In fact, the theory of patent exhaustion probably implicates both patent law and contract law.  It implicates patent law because, once an authorized sale is made, the patentee should have no further right to limit the sale of that item in commerce.  It implicates contract and antitrust law to the extent the patentee tries to impose an improper restriction in its license agreement.  Either way, the Supreme Court should preclude a patentee from contracting around the exhaustion doctrine.

The Justices were also interested in knowing why the exhaustion doctrine was codified in the Copyright Act but not in the 1952 Patent Act.  In this regard the Amici were unable to cite to any useful discussion.

During argument LGE also argued that the notices Intel sent to its customers were valid techniques of avoiding a defense of implied license.  LGE objected to the use of the exhaustion doctrine as an end-around to the defense of implied license.

The role of patent protection in the U.S. economy continues to remain important and should not be undermined.  However, once a patentee has authorized goods or services to be sold under its patent, it should not be entitled to obtain a second payment for the same patent.   The Supreme Court has a chance to reestablish this fundamental principle of U.S. Patent Law.  We will have to wait and see if the Court takes advantage of this opportunity.

Patently-O Bits and Bytes

Bits and Bytes, Patent,