Tag Archives: Licenses

MercExchange v. eBay: Injunction Denied Again

Patent

MercExchange v. eBay (E.D.Va. 2007)

In July, 2007, the < ?xml:namespace prefix ="" st1 />Virginia district court denied MercExchange’s motion for a permanent injunction against eBay. That order is now on appeal to the CAFC and may well establish the future guidelines for injunctive relief in patent cases. < ?xml:namespace prefix ="" o />

In 2006, the Supreme Court heard MercExchange’s initial injunctive relief appeal in that case, the Court found that the Federal Circuit was wrong to always favor injunctive relief and that the District Court had been incurred to deny injunctive relief based on categorization of MercExchange as a non-practicing entity.  Rather, the high court held that injunctive relief decisions must be based on an individualized analysis of the traditional factors governing equitable relief. As stated by the Supreme Court:

“[a] plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.” eBay Inc. v. MercExchange, L.L.C., 126 S. Ct. 1837 (2006)

On remand, the district court again denied equitable relief to MercExchange – finding that the plaintiff did not adequately prove the four factors.

Presumption of Irreparable Harm: The MercExchange district court read the above quoted language to block any presumption of irreparable injury based on a judgment of patent infringement. Of course, that is not the only reading of the eBay decision.  Another consistent opinion would find that a plaintiff may demonstrate irreparable injury by proving ongoing patent infringement. 

Here, the court found that MercExchange would not be irreparably harmed by ongoing infringement because MercExchange is not in the process of developing its invention, it focuses its licensing regime on companies that independently developed the invention, it offered a license to the defendant, its only employees are patent attorneys, it failed to request a preliminary injunction, its patent is a business method patent which are of ‘suspect validity,’ and the ongoing reexamination coupled with the new KSR  precedent puts the validity of the MercExchange patent in doubt. According to the court, eBay’s market dominance weighs in MercExchange’s favor, but is insufficient.

Willful Infringement:: A consideration of willful infringement does not fit cleanly into any of the four eBay factors as stated. However, the maxim of unclean hands is a longstanding principle of equitable relief and thus must be considered.

“Frankly, it appears to the court that neither side has particularly clean hands as both have engaged in litigation tactics that at times may have crossed the line; however, neither side has successful proven the other to be unworthy of a ruling in equity due to unclean hands.”

Here, the district court disregarded the jury’s willfulness finding because it was a “close call” and enhanced damages are sufficient to punish such behavior

Public Interest Favors No Injunction:

“eBay is a multibillion dollar corporation whose online marketplace brings together tens of millions of buyers and sellers around the world and eBay unquestionably has a substantial impact on the United States’ economy; furthermore, eBay’s success pre-dates its infringement. In contrast, MercExchange is a company with two employees that work out of their homes and appear to specialize in litigation and obtaining royalties for licenses based on the threat of litigation. Although the public plainly benefits from a strong patent system and protection from an infringer may be vital when a patent held by a small patent holder is infringed upon by a multi-billion dollar corporation such as eBay, the strongest arguments in equity exist when such small patent holder utilizes its patent to benefit the public; that is, either seeks to develop the patent on its own or develop the patent through licensing agreements. Similarly, equity may favor a patent holder that seeks to defend its right to exclude and prevent development of its patent by others.”

Injunction denied. The appeal is expected to be heard in early Spring 2008.

Notes:

 

Finisar v. DirecTV: Compulsory Patent Licensing

Patent

Finisar v. DirecTV (Fed. Cir. 2007 — On appeal)

A jury found Finisar’s patent willfully infringed. However, the Eastern District of Texas denied injunctive relief. Instead, the court entered a compulsory licensing scheme that gives DirecTV a right to continue to infringe after paying a fee.[Link] On appeal, Finisar lays out its claim for injunctive relief.

Short Facts: Finisar does not practice its patented invention and is unlikely to ever practice its invention. Likewise, Finisar has not licensed its invention. An injunction blocking DirecTV from selling its infringing satellite television services would potentially create a monopoly for EchoStar. And, DirecTV has money to pay for any damages.

In eBay v. MercExchange, the Supreme Court held that injunctive relief in patent cases requires satisfaction of the traditional four factor test of equitable relief. In eBay, the Supreme Court also made clear that the injunction decision must be made on a case-by-case basis without any bright-line rules or Litmus tests.

About Money: The sufficiency of monetary damages relates to both of the first two eBay factors: (1) whether an injunction would protect against irreparable harm to the patentee and (2) whether damages at law are adequate to compensate the patentee for any continued infringement. Finisar first argues that these two these factors must be wrapped together. The argument is simple – a failure of relief at law results in irreparable harm and vice-versa. Tying the two factors is useful for a patentee because it would then only need to prove one of the two factors primary factors.

Particularly focusing on money damages, Finisar argues that damages are inadequate because the calculation of future royalties is speculative and too uncertain. This type of argument, if factually true, regularly supports injunctive relief.

EBay also declares that the factors must be determined on a case by case basis rather than applying categorical rules. Thus, the fact that a plaintiff is only truly interested in a monetary reward may be a legally insufficient reason to deny relief.

Presumption of Irreparable Harm: Although it avoids using the word ‘presumption,’ Finisar argues that the finding of patent infringement creates a presumption of irreparable harm. This presumption issue was not answered by the eBay decision. In fact, that issue could be seen as the dividing point between the two concurring opinions by Roberts and Kennedy. Following this theme, Finisar argues that the particular harm created by allowing ongoing infringement includes: (1) destroying Finisar’s ability to grant an exclusive license; and (2) hurting Finisar’s ability to license to others because the compulsory license does not deter infringement. A well paid damages expert could calculate the value of those harms and include them in the monetary damage award. I would include the further argument in favor of relief: that long-held precedent would require a presumption of irreparable harm.

Notes:

Reestablishing the Doctrine of Patent Exhaustion

Academic Studies, Patent

< ?xml:namespace prefix ="" v ns ="" "urn:schemas-microsoft-com:vml" />By Mark R. Patterson* [PDF Version]< ?xml:namespace prefix ="" o ns ="" "urn:schemas-microsoft-com:office:office" />

Quanta Computer, Inc. v. LG Electronics, Inc.[1], presents facts at the intersection of two legal rules. On the one hand, patentees are free to impose restrictions, such as field-of-use restrictions, when they license others to manufacture their patented products.[2] Such restrictions can be permissible even if they would be antitrust violations outside the patent context.[3] On the other hand, a patentee cannot restrict the use of its patented products once they are sold, whether the sale is by the patentee itself or by a licensee.[4] This is the exhaustion, or first-sale, doctrine. [Background on Quanta v. LGE]

 

The Federal Circuit has caused the first of these rules to swallow the second, by allowing a patentee to convert any sale into a license by imposing some sort of restriction in the transfer. The restriction makes the transfer a “conditional sale,” and the Federal Circuit has held that the exhaustion doctrine applies only to “unconditional sales.”[5] It has applied this rule, moreover, despite the Supreme Court’s application of the exhaustion doctrine to conditional sales.[6]

 

The Federal Circuit’s approach allows patentees to transform a wide range of otherwise permissible conduct into patent infringement. All the patentee needs to do is forbid that conduct in its “conditional sale” arrangement. The Federal Circuit itself suggested in Mallinckrodt that this could allow patentees to eliminate the right of repair, and indeed other courts have applied the approach to allow patentees to eliminate not only the right of reuse/repair,[7] but also the right to resell patented products.[8] More generally, as the American Antitrust Institute argues in its amicus brief, the elimination of the exhaustion doctrine leads to considerable uncertainty, as downstream purchasers cannot know whether their use of the product is permissible unless they ensure that upstream sellers were in compliance with any license restrictions.[9]

 

It seems probable that the Supreme Court will reverse or at least vacate the Federal Circuit’s Quanta decision. It is likely to hold that sales of patented products exhaust the patentee’s patent rights, as the Solicitor General and other amici argue that it should. The patentee could still impose limitations on buyers’ uses of the products, but those limitations would be solely matters of contract. They could not be enforced through patent infringement actions, and they would be subject to antitrust law limitations.

 

But this raises two questions. First, will the Court define the difference between a sale and a license for this purpose? Quanta and the Solicitor General appear to take the position that the distinction should turn on the transfer of title. A problem with that approach is that it would give patentees considerable opportunity to use formal differences in the transaction to alter what should be substantive rules. (The Solicitor General may be unconcerned about this. It discusses with apparent approval Mitchell v. Hawley, 83 U.S. 544 (1872), where the patentee arguably forbad its manufacturing licensee from selling the patented inventions, granting only the right “to license to others the right to use the said machines.” The Court in Mitchell allowed an infringement suit against the downstream users, though the case is somewhat peculiar because the infringement arose after the original patent term had been extended, when the license terms extended only to the end of the original patent term.)

 

An alternative sale-license distinction might focus on what is being transferred by the patentee. As the district court argued in Mallinckrodt, one can read the Supreme Court’s decisions to allow restrictions on manufacturing licensees but not on ultimate purchasers. This echoes a distinction drawn in < ?xml:namespace prefix ="" st1 ns ="" "urn:schemas-microsoft-com:office:smarttags" />Europe, where the EC’s technology transfer block exemption applies to exempt from antitrust scrutiny certain “technology transfer agreements entered into between two undertakings permitting the production of contract products.”[10] Sales of the products after they are produced are governed by another block exemption.[11] Under this view, it is in the manufacture of the product that the patentee’s technology is first used, and its rights exhausted.

 

One effect of the exhaustion doctrine is to make price-discrimination more difficult for the patentee. For example, if the patentee would prefer to sell at different prices to different users, an inability to enforce its patent rights downstream would make it more difficult for the patentee to prevent arbitrage. But the Supreme Court has not hesitated to place other practical limits on price-discrimination by patentees, as in disallowing tying arrangements, which prevents metering through sales of the tied products (though only for patentees with market power). Moreover, even when its patent rights are exhausted, a patentee can enter into contracts forbidding resale for arbitrage, but it can only enforce those contracts through breach-of-contract actions, not through patent infringement suits.

 

The second question is whether the exhaustion rule applies if, as in Quanta v. LG, the product sold is only a component of the patented invention, in that it does not itself satisfy all the claim elements. The Supreme Court has said yes, at least in some circumstances: “[W]here one has sold an uncompleted article which, because it embodies essential features of his patented invention, is within the protection of his patent, and has destined the article to be finished by the purchaser in conformity to the patent, he has sold his invention so far as it is or may be embodied in that particular article.”[12] This rule recalls, though is perhaps somewhat broader than, the contributory infringement doctrine. That is, if this were the rule, the exhaustion doctrine would apply where there has been an authorized sale of a product that would contributorily infringe if its sale were unauthorized.

 

But the Univis Court followed the statement quoted above with another: “The reward [the patentee] has demanded and received is for the article and the invention which it embodies and which his vendee is to practice upon it.” Id. at 251. The question in Quanta v. LG can be viewed as turning on whether this second statement from Univis is one of law or of fact. If it is interpreted as one of law, then the Court is saying that the patentee must get its returns in the sale of the component invention. If the statement is one of fact, then the Court may just be relying on a view that the defendant in Univis had in fact gotten the return to which it was entitled in that first sale. In other cases with different facts, the patentee might be able to use patent law to enforce downstream restrictions despite the upstream sale of a component of the patented invention.

 

For example, one can imagine cases in which the maker of the component at issue, like Intel in Quanta v. LG, would have concerns about contributory infringement claims and therefore would seek a license from the patentee. That seems particularly plausible if the component at issue could be resold, so that even if its maker (Intel) ensured that its customers had licenses from the patentee, others to whom they might resell the component might not. It could make sense for the patentee to grant a license to the component maker in this situation, and make the license apply to downstream purchasers, rather than to enter into licenses with each of those downstream purchasers. But perhaps there could be circumstances in which the patentee would like to price-discriminate by use among the downstream purchasers, so that licenses at each level would be desirable.

 

It will be interesting to see how, or if, the Supreme Court will resolve this issue. As noted above, it could simply say that the patentee must get its profits from the component maker. This would promote certainty in the downstream product markets and be conceptually consistent with contributory infringement law. On the other hand, it would be somewhat odd to require that patentees deal with contributory infringers rather than direct infringers. Moreover, it would place limits on the ability of patentees to price-discriminate, though, as noted above, the Court might not view that as an obstacle. But one could also take the view that where the downstream applications are significantly different, so as to make separate downstream licenses desirable, there should be separate downstream patents, and that the upstream product then would not be “especially made or especially adapted for use in an infringement of [any one of] such patent[s].”[13]

 

The Court might simply choose not to address this issue. It could, for example, just correct the Federal Circuit’s approach to the exhaustion doctrine and then direct the Federal Circuit to address it.[14] That approach might look particularly attractive in that the LG-Intel license itself includes a provision that calls for application of the exhaustion doctrine: “Notwithstanding anything to the contrary contained in this Agreement, the parties agree that nothing herein shall in any way limit or alter the effect of patent exhaustion that would otherwise apply when a party hereto sells any of its Licensed Products.”

 

A final issue is that of LG’s method claims. The Federal Circuit held that “the sale of a device does not exhaust a patentee’s rights in its method claims.” As Quanta’s brief describes, this holding is inconsistent with Supreme Court decisions and even with other decisions by the Federal Circuit. Generally speaking, method claims that would be contributorily infringed by an unauthorized sale of a product should be exhausted by an authorized sale of the product. But if the method at issue goes beyond the normal use of the product at issue, so that the product arguably does not contributorily infringe the method patent, as suggested above for downstream product patents, it seems that exhaustion should not occur.

 

The Federal Circuit’s cases beginning with Mallinckrodt and continuing through Quanta have allowed patentees to use contract, or even simply unilateral notice, to eliminate the application of the exhaustion doctrine. By simply prohibiting certain conduct in their “license” agreements, patentees can under current Federal Circuit law transform what would be permissible conduct into patent infringement. The Supreme Court, however, said in Univis that “sale of [a patented article] exhausts the monopoly in that article and the patentee may not thereafter, by virtue of his patent, control the use or disposition of the article.” The Court’s forthcoming decision will likely reestablish that rule.

 

* Mark Patterson is a Professor of Law at Fordham University School of Law . His article on field-of-use licensing was recently published in the William & Mary Law Review. Mark R. Patterson, Contractual Expansion of the Scope of Patent Infringement Through Field-of-Use Licensing, 49 Wm. & Mary L. Rev. 157 (2007).

 

Preferred Citation: Mark R. Patterson, Reestablishing the Doctrine of Patent Exhaustion, 2007 Patently-O Patent L.J. 38, https://patentlyo.com/lawjournal.

 

[1] Supreme Court Docket No. 06-937. Oral arguments are scheduled for Wednesday, January 16, 2008. http://www.supremecourtus.gov. For background on the particular issues, see, Dennis Crouch, Supreme Court to Decide Patent Exhaustion Case, Patently-O (Sept. 25, 2007) at https://patentlyo.com/patent/2007/09/supreme-court-t.html.  

[2] General Talking Pictures Corp. v. Western Electric Co., 304 U.S. 175 (1938).

[3] United States v. General Electric Co., 272 U.S. 476 (1926). 

[4] Adams v. Burke, 84 U.S. 453 (1873); Motion Picture Patents Co. v. Universal Film Manufacturing Co., 243 U.S. 502 (1917), United States v. Univis Lens Co., 316 U.S. 241 (1942).

[5] Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992). 

[6] Motion Picture Patents 243 U.S. 502; Univis Lens. 316 U.S. 241.

[7] Arizona Cartridge Remanufacturers Association, Inc. v. Lexmark International, Inc., 290 F. Supp. 2d 1034 (N.D. Cal. 2003), aff’d, 421 F.3d 981 (9th Cir. 2005).

[8] Pioneer Hi-Bred International, Inc. v. Ottawa Plant Food, Inc., 283 F. Supp. 2d 1018 (D. Iowa 2003). 

[10] Commission Regulation 772/2004 on the application of Article 81(3) of the Treaty to categories of technology transfer agreements, O.J. L 123/11, art. 2 (2004), http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32004R0772:EN:NOT. 

[11] Commission Regulation 2790/1999 of 22 December 1999 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices, O.J. L 336/21 (1999), http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31999R2790:EN:NOT.

[12] Univis Lens, 316 U.S. at 250–51.

[13] 35 U.S.C. § 271(c). 

[14] Cf. KSR Int’l Co. v. Teleflex Inc., 127 S. Ct. 1727 (2007); eBay Inc. v. MercExchange, L.L.C., 126 S. Ct. 1837 ( 2006).

 

 

Notes:

 

James B. Kobak, Jr., Contracting Around Exhaustion: Some Thoughts About the

CAFC’s Mallinckrodt Decision, 75 J. Pat. & Trademark Off. Soc’y 550 (1993).

 

Mark R. Patterson, Contractual Expansion of the Scope of Patent Infringement Through

Field-of-Use Licensing, 49 Wm. & Mary L. Rev. 157 (2007).

 

Richard H. Stern, The Unobserved Demise of the Exhaustion Doctrine in U.S. Patent

Law: Mallinckrodt v. Medipart, 15 Eur. Intell. Prop. Rev. 460 (1993).

 

Tax Strategy Patents

Patent,

PatentLawPic116The Internal Revenue Service is “concerned” about tax strategy patents and has issued a notice of proposed rules to require a special disclosure if a taxpayer uses a patented tax planning method to achieve a tax benefit. 

The specific rules would require a special disclosure reporting a patent license anytime a taxpayer pays a fee (including indirect consideration) to a patent holder for the legal right to use a tax planning method that the taxpayer “has reason to know” is subject to a patent.  A tax planning method is defined as “any plan, strategy, technique, or structure designed to affect Federal income, estate, gift, generation skipping transfer, employment, or excise taxes.” The rule would exclude patents covering tax preparation software or “other tools used to perform or model mathematical calculations or to provide mechanical assistance in the preparation of tax or information returns.”  Under the rules, both the licensee and licensor (patent owner) would be required to submit the disclosure reporting the license transaction.

One hole in the rule would allow non-licensed intentional infringers to use the patented tax strategy without filing any particular documentation. 

This disclosure is akin to the recent proposal by Lemley & Myhrvold to require publication of all patent licenses. However, the IRS rule is much easier to implement because of a pre-existing enforcement structure and the relatively small number of tax strategy patents. In the tax strategy business, the disclosure could dramatically change the current status of highly secret meetings and extensive diversion tactics.

Notes & Documents:

  • Any comments on the rules must be received by December 26, 2007. Once effected, the new rules will apply retroactively to September 26, 2007. Comments may be submitted through the eRulemaking portal at www.regulations.gov with reference to IRS-REG-129916–07. The IRS point of contact is Richard Hurst: Richard.A.Hurst@irscounsel.treas.gov (202) 622–7180.
  • Federal Register Publication: http://patent.googlepages.com/TaxPatents.pdf.
  • Senator Obama has proposed an amendment to 35 USC 101 to eliminate tax shelter patents [Link].
  • More info from Paul Caron — the “TaxProf” [Link][Link].

Some Tax Strategy Patents:

  • 6,567,790: Funding of a GRAT with nonqualified stock options.
  • 6,292,788: Tax-deferred real estate transaction.
  • 7,149,712: Purchase of an annuity contract to fund a charitable remainder trust.
  • 7,177,829: Tax Refund System (HRBlock Software).

Patent Law News

Patent
  • Help prepare the next GSK brief with Michael Alexander’s WikiBriefs.
  • PatentLawPic112Intellectual Ventures plans to spend $2 billion over the next several years on patent rights. The ‘non-producing entity’ has been largely shut-out from top US university technology transfer deals because many universities and is now refocusing on doing deals with non-US universities and researchers.  US universities are not interested in selling because they want their licensees to develop the technologies. IntVen CEO Nathan Myhrvold told the WSJ that his company has not yet sued anyone for patent infringement. (See WSJ Blog).
  • PatentDocs blog is one year old. Congratulations on a great start! [Link] (The senior patent doc – Dr. Kevin Noonan – is pictured at right).
  • Patent Troll Tracker also provides a milestone — his 100th post. In that post, PTT calls for patent reform. He’s upset by “the numerous multi-defendant patent litigation cases being brought by non-practicing entities and patent trolls in the Eastern District of Texas.” [Link]
  • David Donoghue posts his “Blawg Review.”

Recent Jobs:

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CAFC Approves Compulsory License (but calls it an “ongoing royalty”)

Patent

PatentLawPic077Paice v. Toyota (Fed. Cir. 2007)

A jury found that Toyota infringed Paice’s hybrid engine patent only under the doctrine of equivalents. In a post-verdict decision, the Texas district court denied injunctive relief — finding that a $25 per engine compulsory license rate was sufficient. On appeal, the CAFC affirmed the infringement decision — holding that the jury had sufficient evidence to both (1) find infringement under the doctrine of equivalents and (2) deny literal infringement.

The major question at issue in this appeal, however, is the ongoing royalty. (The CAFC majority refused to call the ongoing royalty a compulsory license — Judge Rader, concurring, noted that the two are identical).

No Relief and No License: Denial of injunctive relief does not equate with issuance of a compulsory license.  Here, the CAFC recognizes that after denying injunctive relief, a district court may choose simply to wait for the parties to either negotiate a license or stop infringing.  In fact, the court noted that an ongoing royalty should not be determined simply as a matter of course. Rather, such an extreme form of relief should be used only as “necessary.”

[A]warding an ongoing royalty where “necessary” to effectuate a remedy … does not justify the provision of such relief as a matter of course whenever a permanent injunction is not imposed. In most cases, where the district court determines that a permanent injunction is not warranted, the district court may wish to allow the parties to negotiate a license amongst themselves regarding future use of a patented invention before imposing an ongoing royalty. Should the parties fail to come to an agreement, the district court could step in to assess a reasonable royalty in light of the ongoing infringement.

Calculating the Reasonable Ongoing Royalty: In this case, the district court held that the ongoing royalty should be the same royalty rate as determined by the jury for past damages. On appeal, the CAFC found that much more should go into the determination of an ongoing royalty. And, of course, future royalties would likely be different than past royalties if only because of a shift in timing of the hypothetical negotiation.

Power to Order Compulsory License: Although settlement is preferred, the CAFC made clear that a district court judge has the power to declare an ‘ongoing royalty’ rate.  Further, because ongoing royalties are a form of equitable relief, there is no Seventh Amendment right to a jury decision.

Remanded for a recalculation of the ongoing royalty.

Patent Licensee holding Exclusive Rights to a Field of Use Does Not Have Standing

Patent

PatentLawPic073International Gamco v. Multimedia Games (Fed. Cir. 2007).

A single patent can have multiple ‘exclusive licensees’ where each licensee has exclusive rights to a portion of the patent rights. Rights are often divided temporally, physically, by field of use, and by type of use.  Here, Gamco received an exclusive license grant from gaming giant IGT to sell state authorized NY lottery games covered by the ‘035 patent.

On appeal, the CAFC found that Gamco does not have standing to file suit without the cooperation of the patentee, IGT.

An exclusive licensee possesses standing to sue in its own name if it holds “all substantial rights” to the asserted patent. Historic cases have held that an exclusive territorial licensee has standing without joining the assignee. Here, the court drew a line at exclusive field of use licenses — holding that an exclusive license to a portion of the patented subject matter does not include sufficient rights to create licensee standing.  Relying on the Supreme Court’s 1892 Pope v. Jeffery opinion, the appellate panel found that field of use divisions create a real potential that a defendant could face suits from multiple licensees.

“In Pope, as in this case, the license only conveyed rights to a subset of the patented subject matter. For that reason, as in this case, the conveyance posed a threat of multiple suits based on the same allegations of infringement. This court therefore holds that Gamco lacks standing to sue in its own name without joining IGT.”

Senior Judge Friedman gave a different reading to Pope and filed a dubitante opinion — doubting the correctness of the decision.

Patent Malpractice a Federal Issue

Patent

Air Measurement Corp v. Akin Gump (Fed. Cir. 2007).
Immunocept v. Fulbright & Jaworksi (Fed. Cir. 2007).

Through a pair of malpractice cases, the CAFC has expanded its reach over state law malpractice claims.  These cases conclude that federal courts hold exclusive jurisdiction over cases involving state law malpractice claims that require resolution of a “substantial question of federal patent law” such as infringement, validity, enforceability, or patent claim scope. This general concept is not new, rather, these case incrementally expand the type of patent malpractice claims that require federal court decisionmaking. The issue is whether the particular form of malpractice asserted requires a determination of a substantial question of federal patent law.

In Air Measurement (AMT), the patent holder sued its attorney for malpractice based on a series of alleged mistakes, including filing after an on sale bar date, failing to submit two prior art references; and failing to properly inform AMT of the mistakes. AMT was still able to collect $10m in royalties on the patent family, but asserted that it would have collected more but for the alleged attorney error.  Because adjudication of the malpractice claim requires a determination of (potential) patent infringement, the dispute properly ‘arises under’ the US Patent Law. 28 USC 1338.

In Immunocept, the patent holder attempted to license its patents to J&J back in 2002. J&J’s attorneys found that the patent was narrowly drafted and refused to take a license. (‘Consisting of’ claim language). In 2005, the Immunocept sued its patent attorneys for malpractice. On appeal, the CAFC agreed that federal courts holds exclusive jurisdiction over this case because it requires a determination of patent claim scope – a substantial patent law question.

“Because patent claim scope defines the scope of patent protection, we surely consider claim scope to be a substantial question of patent law.”

After finding jurisdiction, the appellate panel affirmed the lower court’s finding that the claim was barred by a two-year statute of limitations. (Clock begins running after reasonable notice of the facts underlying a malpractice claim).

Appellate Standing Does Not Require Patentee

Patent

Schwarz Pharma and Warner Lambert v. Paddock Labs (Fed. Cir. 2007)

Schwarz sued after Paddock filed an ANDA for FDA approval to sell generic forms of Schwarz’s Univasc ACE inhibitor. Under 35 USC 271(e), the act of filing an ANDA is a form of patent infringement.  Paddock won on summary judgment of non-infringement.

Standing: Schwarz is the exclusive licensee. Warner-Lambert actually owns the patent. On numerous occasions, the CAFC has held that the patent owner must be a named plaintiff in any patent infringement action. (An exclusive-licensee does not have sufficient standing on its own). The question on appeal is whether the patent owner must be part of an appeal as well.

Without any statutory or precedential guidance, the CAFC was forced to create its own rule — holding that – unlike district court standing – appeals to the CAFC do not necessarily need to include the patent holder.

The district court standing requirement is explained as a method of avoiding the potential of a defendant facing separate actions from a patent holder and its exclusive licensee. Because there is ‘no such danger’ for appeals, the CAFC found that the ‘prudential’ standing requirement is not necessary.

Prosecution History Estoppel: As a reminder not to rely on the doctrine of equivalents (DOE), the appellate panel held that DOE coverage was excluded based on the patentee’s narrowing amendment during prosecution.  In its attempted end-run, Schwarz argued the amendment should not exclude DOE coverage for the accused product containing MgO because MgO was not covered by the originally filed claim.  The CAFC rejected that argument — Somehow the court could not wrap its head around Schwarz’s argument that MgO was not an “alkali or alkaline earth metal salt” as originally claimed.

Notes: Interestingly, the court appears to have only applied a shorthand analysis for construing the original scope of the claims.

A Tangled Web of Patent Rights

Patent

Patent.Law035Patent Attorney and Inventor Scott Harris is at the center of an interesting web of events. Harris is the inventor of dozens of patents and has successfully licensed those patents with the help of the plaintiff’s firm Niro Scavone. Until last month, Harris was also a principal at Fish & Richardson. Illinois Computer Research (ICR), a recent assignee of a Harris patent, is suing both Google (for patent infringement) and Fish & Richardson (for tortious interference, etc.). 

For its part, Fish & Richardson allegedly claims title to the Harris patent – which was apparently invented while Harris was working at Fish.

In the lawsuit, ICR has asserted that Google infringes its US Patent No. 7,111,252. The patent at issue here apparently covers features for improving the look and feel of the internet — Google’s Book Search is the accused product. According to Information Week, this is at least the fifth patent lawsuit filed against Google in 2007. (Meanwhile Google stock …).

Two other Harris patents have also recently been asserted: See BarTex v. FedEx and Memory Control v. Honda, LG, Motorola, et al. Harris patents have also been asserted against Dell, GM, Panasonic, Kodak, cars.com, and move.com.  Joe Mullin of the Daily Journal reports that Harris denies any involvement in the ownership or management of any of these companies. The owner instead is James Beauregard Parker — a member of the Florida Bar since 2005.

Short Article Request: In the wake if this case, I would like to post a short (600 word) article on determining an employee’s inventorship rights. This article might think about the default rule absent an employee agreement; may an agreement to assign implied; how does patent law differ from copyright work for hire.

Peter Detkin on the New Patent Market

Patent, ,

DetkinPeter Detkin is Intel’s former director of patents, licensing, and litigation who coined the term patent troll. More recently, Detkin co-founded Intellectual Ventures. IV’s product is intellectual property and IP licenses. The company buys patents from small companies and individual inventors and also files patents on its own inventions.

Detkin has an interesting new article in John Marshall’s RIPL journal titled “Leveling the Patent Playingfield.” In the article, Detkin does a great job of explaining IV’s role in the process.

Normally small players have great difficulty simply avoiding being marginalized by major players.  One part of IV’s business is to aggregate the patent rights held by small players and then use its newfound size and power to license those portfolios.

Although IV’s purpose is clearly to make money, he also sees the results as helping the little guy:

“By matching patent owners with patent users, this market may enable small inventors to have a greater stake in their technological efforts.”

The article is an interesting and quick read (especially for a law review).

Ford Design Patents Block Import of Repair Parts – Infringers Call for Patent Reform

Design Patent, Patent, Patent Cases 2007

Patent.Law031In re Certain Automotive Parts, 2007 WL 2021234 (ITC 2007)

Ford Motor Company owns dozens of design patents covering various aspects of its vehicle designs. D496,890, for example, covers a vehicle grille; D493,552 covers a vehicle head lamp; D503,135 covers a bumper lower valance; and D496,615 covers a side view mirror. In 2005, Ford initiated a Section 337 action before the International Trade Commission (ITC) asking for an exclusion order against various auto parts importers whose imports violated the Ford design patents. For the most part, the accused parts are used to repair post-crash vehicles.

An administrative law judge (ALJ) found that the majority of the asserted patents were valid and infringed, although some patents were invalid.  The ITC then issued an order to exclude importation of the unlicensed repair parts.

Repair doctrine: Over the years, courts have created a non-statutory doctrine of permissible repair. Under the doctrine, post-sale repairs made to a patented object are not considered actionable. On the other hand, reconstruction of the patented object will be actionable as an unlicensed “making” of the invention.

Although interesting, the repair doctrine does not apply here. The accused infringers are not repairing anything — rather, they are importing replacement parts that on their own are infringing.

Calls for Patent Reform: After losing on the merits, the would-be importers have jumped on the patent reform bandwagon asking for a “repair parts” exception to the design patent laws. [Quality Parts Coalition]. Car manufacturers would like to go the other way — adding vehicle hull design protection to the Copyright Act. [See Boat Hull statute]

Appeal: The case, captioned as Ford v. ITC, 07–1357, is now on appeal at the CAFC — A decision is expected summer 2008.  The critical question for Ford — will the patents pass the CAFC’s dreaded points-of-novelty test?

How not to divide patent rights during bankruptcy

Patent

Morrow v. Microsoft (Fed. Cir. 2007)

In bankruptcy, AHC’s title to its patent transferred to a liquidating trust, AHLT. A second trust, GUCLT, was given the right to several causes of action, including patent infringement litigation (generally called Estate Litigation).  GUCLT was not granted a license to make or use the patent.

Through its trustee, GUCLT sued Microsoft for infringing Patent No. 6,122,647 – a patent relating to dynamic generation of hypertext links. Microsoft was awarded summary judgment on the merits. On appeal, GUCLT had trouble even getting a hearing.

Standing: To have standing, a party must show injury:

  • The patent title holder has standing to sue because infringement injures the patent holder’s right to exclude.
  • An exclusive licensee usually has standing to sue because the infringement injures the licensee’s ‘exclusivity.’ When the exclusive licensee sues, the patent title holder must be joined as a co-plaintiff.
  • A non-exclusive licensee usually does not have standing because they have no right to stop others from making or using the invention.
  • A non-licensee also has no standing to sue.

GUCLT holds the contractual right to sue, but is not a licensee. Ergo, GUCLT does not have standing.  (Under the bankruptcy plan, AHLT likewise has no right to bring litigation…)

Rule of Practice: A non-title-holder must be granted an exclusive license as well as full litigation rights in order to have standing to sue for patent infringement.

Patently-O Tidbits

Academic Studies, Design Patent, License, Patent
  • Lemley (Stanford) & Myhrvold (IntVen) have released a short article on “how to make a patent market.” They suggest that an information gap is one problem creating friction in licensing negations. The solution — require publication of patent assignments and license terms. [LINK]
  • Over the past few weeks, we have directed some focus on the protection of industrial designs. Why? (1) the law surrounding protection of industrial designs is in disarray; (2) I expect that protection of industrial designs will become more important as utility patent protection becomes more difficult and more costly; and (3) if well protected, industrial designs & fashion rights may well be worth more than the value of all non-pharmaceutical utility patents.
  • New Patent Law Job Postings:

Design Patents: Corporate Parts Buyer as Ordinary Observer

Design Patent, Patent, Patent Cases 2007,

PatentLawPic036Arminak v. Saint-Gobain Calmer (Fed. Cir. 2007).

In yet another serious blow to design patent protection the Federal Circuit has affirmed a lower court ruling that Arminak’s spray nozzle design is not infringed by Calmer.

Design patent infringement is defined both in 35 U.S.C. 271 and 289.  According to Section 289, a design patent is infringed by unauthorized commercial manufacture, use, or sale of the design or a “colorable imitation.”

Whoever during the term of a patent for a design, without license of the owner, (1) applies the patented design, or any colorable imitation thereof, to any article of manufacture for the purpose of sale, or (2) sells or exposes for sale any article of manufacture to which such design or colorable imitation has been applied shall be liable to the owner to the extent of his total profit, but not less than $250, recoverable in any United States district court having jurisdiction of the parties. 35 U.S.C. 289.

Infringement: Overshadowing the statutory guidelines is the CAFC’s judicially created infringement jurisprudence. According to the CAFC, infringement requires satisfaction of two distinct tests: First, in the eyes of an “ordinary observer,” the accused design as a whole must be deceivingly similar to the patented design. Second, the accused design must appropriate one or more points-of-novelty that distinguish the design from the prior art.

Ordinary Observer: Like the PHOSITA in utility patent cases, the ordinary observer is a mythical being. However, instead of being ‘skilled in the art,’ the ordinary observer is aware of the patented design, but is not an expert in the art.

Arminak manufactures and sells spray nozzles. However, Arminak does not sell on a retail level.  Rather, the nozzles are purchased by other manufacturers who join them with bottles full of product.

The corporate nozzle buyers can distinguish between Arminak & Calmer nozzles without much trouble. Once assembled, retail customers have difficulty in distinguishing between the nozzles once assembled.  The case then turns on whether the ordinary observer is defined as the corporate buyer of the nozzle or a retail customer of the fully assembled product.

Sitting by designation, Judge Holderman determined that the ordinary observer should be defined by the patentee’s corporate structure. Because Arminak’s products pass through a middle-man for further processing, it cannot count the downstream retail purchasers as ordinary observers who “buy and use” the sprayer. Rather, the ordinary observer is the corporate nozzle buyer.  (Thus, eventual customer confusion regarding the final product makes no difference).

It was undisputed that a corporate buyer would not be deceived by overall similarities between the accused and patented designs — thus no infringement.

Point of Novelty: The panel also found that the accused design did not appropriate any “points of novelty” of the patented invention. In doing so, the court found that a side-by-side detailed comparison between the accused product and the patent design drawings was appropriate.

To establish infringement in a design patent case, the district court is required to compare the patented design with the accused design. Without comparing the patented design with the accused design, there was no way for the district court to determine whether an ordinary observer would find the accused design deceptively similar and whether the accused design appropriated points of novelty.

For utility patent experts, this type of analysis is second nature. However, for over 100 years prior to founding the CAFC, the rule has been that design patent infringement jurisprudence does not allow for such “side by side” examination. See Gorham Manufacturing Co. v. White, 81 U.S. 511 (1871) (rejecting a side-by-side comparison as leading to an ‘expert’ result rather than that of an ‘ordinary observer’).

Damages: Contentious History Between Parties Justifies High Royalty Rate

Damages, Patent, ,

CaliperMitutoyo Corp v. Central Purchasing (Fed. Cir. 2007)

Mitutoyo and Central have been wrangling for more than a decade over Mitutoyo’s patent covering electronic calipers. The history includes Central’s 1994 agreement to exit the market; a 1995 DJ finding that the patent is not invalid or unenforceable; and a 2006 summary judgment against Central.

Both parties appealed on damages issues:

Reasonable Royalty: On appeal the CAFC found the lower court’s 29.2% reasonable royalty rate acceptable. Although a seemingly high number, Central’s profit margin is around 70%. Most interestingly, the appellate panel held that the parties “contentious history” supports a high royalty rate. This serves as a reminder that a the reasonableness of the royalty still takes-into-account the positions of the parties.

Lost Profits: Although Mitutoyo also sells calipers, Central was able to avoid lost profit damages by showing that the products had little customer or price overlap. (Central’s proof included economic evidence that the market for its $21 product was highly elastic – indicating few of its customers would have instead purchased Mitutoyo’s $100 product.)

Willful Infringement: Mitutoyo’s willful infringement claim was dismissed on the pleadings under FRCP 12(b)(6) for failure to state a claim and failure to prosecute. On appeal the CAFC reversed – finding that Mitutoyo’s allegation of willful infringement coupled with Central’s long history with the patent were “plainly more than sufficient to meet the requirement of Rule 8(a)(2) for pleading a willful infringement claim and avoid dismissal.” Similarly, the appellate court held that failure to file a summary judgment motion on willfulness does not indicate “an intent to abandon [the] willfulness claim.”

In its August 2007 Seagate en banc opinion, the CAFC raised the culpability standard for willful infringement. This case takes a step back to remind courts that the enhanced damages theory does not (yet) require a showing of fraud.

Standing of a licensee to sue: Mitutoyo’s primary US licensee was also a party to the litigation. However, a licensee only has co-plaintiff standing if it holds “at least some of the proprietary rights” of the patent. Here, the licensee has no standing because Mitutoyo also allows one other company to import and distribute its products in the US.

 

Internet Gamer Loses Millions in Default Patent Judgment

Patent

PatentLawPic022Bodog is an offshore internet gambling operation.  The US Government considers internet gambling illegal. And, for some time, Bodog’s famous leader, Calvin Ayre, has reportedly avoided stepping back on US soil.

In 2006, Bodog was sued for patent infringement by 1st Technology. Bodog failed to respond to the complaint, and now the Nevada district court has issued a default judgment of $46 million+. 1st Technology has also requested an injunction to stop all Bodog advertisements of infringing products.

Bodog’s domain name is apparently being pulled-into the mix to satisfy the judgment. [LINK] Meanwhile bodog is operating at www.newbodog.com.

Notes

  • The patent at issue is U.S. Patent No. 5,564,001.
  • Several online gambling sites have previously licensed the patent from 1st Technology including playtech.

McFarling Petitions Supreme Court to Hear RoundUp Ready Patent Case

Patent,

Homan McFarling farms soybeans and other crops a few miles from my family’s farm in northern Mississippi.  Monsanto sued McFarling for replanting Monsanto’s patented GMO soybean seeds in violation of the “Technology Agreement.”

Soybean.USDAA Missouri jury found McFarling liable and awarded damages of $40 per seed-bag even though Monsanto typically charges only $6.50 license fee per seed-bag. On appeal, the CAFC found that the listed royalty rate did not provide any limit for the royalty calculation. Rather, infringement damages can properly include (a) the harm felt by Monsanto because of the infringement as well as (b) the additional benefits garnered by McFarling. In particular, these include: reputational harm due to rogue planters, potential lapses in monsanto’s database of planting techniques; bargaining power; as well as McFarling’s increased yield of $31 – $61 per acre.

Now, McFarling has petitioned the Supreme Court for a Writ of Certiorari with two questions (with subparts):

  1. In determining a “reasonable royalty” under the patent-damages statute, 35 U.S.C. § 284, may the factfinder award the patentee either:
    • (a) a hypothetically negotiated royalty that vastly exceeds the established royalty charged in the marketplace, or
    • (b) a royalty that includes damages to the patentee’s third-party distributors and is intended to force the infringer to disgorge his profits—even though Congress eliminated the equitable disgorgement remedy in 1946?
  2. Do the doctrines of patent exhaustion and patent misuse permit the purchaser of a patented good to use that good and dispose of its products as it sees fit, absent a valid contract?

Mark Lemley (Stanford) is McFarling’s attorney.

Notes:

V-Chip Declaratory Judgment Patent Case Reinstated by CAFC

Declaratory Judgment, Patent, Patent Cases 2007

VchipSony Electronics v. Guardian Media (Fed. Cir. 2007).

Guardian holds several patents for blocking naughty TV shows based on program classification codes. In 1999, Guardian sent a “notice of patent infringement” to Sony asserting that its V-Chip products “infringe the claims,” and later followed-up with a claim chart. Four years later, Guardian sent another letter offering to license its patents. After unsuccessful negotiations, Sony filed a declaratory judgment action in the Southern District of California — alleging non-infringement, invalidity, and unenforceability.

On motion, the district court dismissed the suit for lack of declaratory judgment jurisdiction — finding no actual controversy as required by the Constitution. In particular, the court noted that Guardian had not threatened to sue and the circumstances did not imply a threat of immediate suit. The court then went on to hold that even if jurisdiction existed it would use its discretion to decline hearing the case because (1) the question of jurisdiction is “close” and (2) it appears that the DJ plaintiffs are using the case as a negotiation tool rather than as a means to settle the dispute.

Particular Adverse Positions => DJ Jurisdiction: On appeal, the CAFC determined that an actual controversy certainly existed between Sony and Guardian at the time of the complaint. The parties had taken particular adverse positions regarding infringement and validity (associating particular claims with particular products; requesting a particular amount of money; arguing whether particular prior art references demonstrated particular claim elements). The facts of this dispute make it “manifestly susceptible of judicial determination.” (quoting 300 US 227 (1939)).

In short, because Guardian asserts that it is owed royalties based on specific past and ongoing activities by Sony, and because Sony contends that it has a right to engage in those activities without a license, there is an actual controversy between the parties within the meaning of the Declaratory Judgment Act.

Discretionary Dismissal: The Declaratory Judgment Act allows a court “substantial discretion” not to hear cases even when there exists an actual controversy. However, here, the CAFC found that the lower court’s two reasons for declining to hear the case were arbitrary and thus insufficient. Specifically, the question of jurisdiction is not a close call as the lower court had determined — rather it was only close because of an error of law. Additionally, the CAFC could not discern any “affirmative evidence” of plaintiffs’ nefarious reasons for filing suit.

Vacated and remanded to determine whether there may be other reasons for discretionary dismissal.

Notes:

  • Four other DJ plaintiffs had similar experiences and are discussed in the decision.

MercExchange v. eBay: Injunction Denied

All Elements, Patent,

TomWoolstonMercExchange v. EBay (E.D.Va 2007)

For the second time, Judge Friedman (E.D. Va.) has denied MercExchange’s request for permanent injunctive relief.  Judge Friedman notes that injunctive relief is only available when a plaintiff is suffering current irreparable harm that threatens future irreparable harm. In other words, past injury is not a variable in the injunction calculus — willful or not, what’s done is done and cannot be fixed by an injunction.

No Presumption: As a starting point, the Court found that willful infringement of a patent creates no presumption of irreparable harm.

Irreparable Harm: Although the Court agreed that MercExchange has suffered harm do to the infringement — the harm is not irreparable.  This finding is based on MercExchange’s “consistent course of seeking to maximize the money it can obtain from licensing its patents to market participants.” In particular, after the trial, MercExchange licensed its patents to UBid. (Note: post-trial activity alters decision — focusing on eBay’s media reports).

Suspect Patents = No Injunction?: As a secondary factor, the Court continued its assertion that the potential suspect nature of the MercExchange patents also leads to a denial of injunctive relief:

Furthermore, KSR reveals the Supreme Court’s reservations regarding patents similar to the ’265 patent, the PTO twice issued interim actions rejecting all claims in the ’265 patent as obvious prior to the issuance of KSR.

Monopolist <> Injunction: Finally, the court rejected MercExchange’s argument that eBay’s de facto monopoly position necessarily leads to entry of a permanent injunction.

Injunction Denied

Notes:

  • EBay’s motion for stay pending reexamination was also denied.
  • There is more to this opinion. Including a further discussion of public interest…