In addition to regular examination, the asserted patents had also been reexamined by examiners at the PTO. Later, during litigation, several already cited references were used by courts as invalidation tools.
Patents are given a presumption of validity. When previously considered references are asserted in an invalidity defense, the presumption of validity is even stronger. Courts reason that such a challenge “bears the added burden of overcoming the deference that is due to a qualified government agency presumed to have done its job.”
Here, however, the CAFC gave little weight to the Examiner’s review of references after finding a misstatement in the Examiner’s reasons for allowance.
The examiner … summarized her analysis of the prior art by stating that none of the cited references “addresses the presence of hematopoietic stem cells in umbilical cord or placental blood, that these cells may successfully be cryopreserved, or that, as a collection from a single human at birth, these cells may comprise an amount that is sufficient to effect hematopoietic reconstitution of a human adult.” That explanation is flawed for three reasons. First, as we have explained, the prior art references and the admissions in the specification address the presence of hematopoietic stem cells in cord blood, even though the references may not conclusively prove their presence. Second, Koike established that cord blood could be cryopreserved without substantial losses in the population of progenitor cells; the inventors contributed nothing more with respect to cryopreservation, as their mouse experiments were not performed with cryopreserved blood. Third, while the joint specification states that the amount of cord blood obtained at the time of birth would often be sufficient to transplant an adult, the inventors reached that conclusion simply by comparing the known properties of bone marrow against the results of routine testing of their own cord blood samples.
Although left ambiguous, it appears that the flaws in the Examiner’s final analysis gave the courts reason to take an entirely fresh look at the references in question.
CSIRO operates as a technology licensing arm of the Australian Government. CSIRO does not practice its inventions, but has asserted its wireless LAN patent against a number of accused infringers, including Intel, Microsoft, Marvell, and Buffalo. The patent is broad enough to cover all 802.11a/g wireless technology and has a 1992 priority date.
In the case against Buffalo, CSIRO won a slam-dunk summary judgment of validity and infringement. The court then considered whether to award a permanent injunction in favor of the non-practicing entity (NPE).
Monsanto is one of the few patentees that sues individuals for patent infringement. In Monsanto’s case, the infringers are farmers who allegedly save & replant Monsanto’s patented genetically modified seeds violation of their “Technology Agreement”. When McFarling was found liable, the Missouri jury assessed damages of $40 per seed-bag and the court issued an injunction.
Monsanto customarily requires a royalty payment of $6.50 per seed-bag in addition to $22 per bag for the soybean seeds themselves. On appeal the CAFC focused on the proper royalty measure. McFarling argued that $6.50 was the “established” royalty while Monsanto argued that the actual royalty rate is much greater.
The Court agreed with Monsanto that the nominal designation of $6.50 as a royalty was not the entire sum of the damages:
Picking $6.50 as the upper limit for the reasonable royalty would create a windfall for infringers like McFarling. Such infringers would have a huge advantage over other farmers who took the standard Monsanto license and were required to comply with the provisions of the license, including the purchase-of-seed and non-replanting provisions. The evidence at trial showed that Monsanto would not agree to an unconditional license in exchange for a payment of $6.50, and the explanation—that Monsanto would lose all the benefits it gets from having the cooperation of seed companies in promoting Monsanto’s product and controlling its distribution—is a reasonable commercial strategy.
In fact, the CAFC found that the royalty rate can easily be calculated as something above the total $28 dollars per bag paid.
[I]t would be improper to hold that Monsanto’s reasonable royalty damages are limited to $25.50 to $28.50 per bag.
The damage amount, instead of being based on the amount usually paid by farmers, legitimately includes (a) the harm being felt by Monsanto because of the infrinement 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 yeald of $31 – $61 per acre.
Based on those advantages alone, it was reasonable for the jury to suppose that, in a hypothetical negotiation, a purchaser would pay a royalty of $40 per bag for the Roundup Ready seed.
Under CAFC law, a jury’s damage award will be affirmed unless “grossly excessive or monsrous, clearly not supported by the evidence o rbased only on speculation or guesswork.” Here the court found sufficient reasons for the verdict and affirmed.
Established Royalty: Typically, an “established royalty” is the best measure of reasonable royalty damages when “the patentee has consistently licensed others to engage in conduct comparable to the defendant’s.” The rule of established royalty rate does not apply here, however, because Monsanto apparently never allows for replanting — Thus, there are no “comparable” replanting licenses.
Blacklist: The court also noted that Monsanto may blacklist Mr. McFarling from buying its seeds.
Notes:
Mark Lemley of Stanford argued on behalf of the Farmer, McFarling.
Several other issues are included in the decision.
Patent are business tools that can help ensure some monetary reward for innovative effort. Although few patent are litigated through final decision, the threat of litigation casts an ever-present shadow on licensing negotiations and inter-corporate dealings. Of course, any underlying threat is closely related to the size of potential damages and strength of a potential injunction. In the past two-years, damages in particular have become more important as the Supreme Court’s decision in EBay v. MercExchange lessens the likelihood of injunctive relief.
There has been little scholarly discussion of how ongoing money damages should be assessed when an injunction is denied. I take the position that a denial of an injunction should not necessarily result in a compulsory license and that there are many times when continued infringement would be considered willful.
The Patent Reform Acts of 2007 (both House and Senate) propose changes to damage calculations that would require specific economic analysis to ensure that any reasonable royalty damage award captures "only [the] economic value properly attributable to the patent’s specific contribution over the prior art." These calculations would apparently apply to calculations of both past and future damages. CAFC Chief Judge Michel recently testified before Congress — discussing some practical implementation of the damage modifications:
[T]he provision on apportioning damages would require courts to adjudicate the economic value of the entire prior art, the asserted patent claims, and also all other features of the accused product or process whether or not patented. This is a massive undertaking for which courts are ill-equipped. For one thing, generalist judges tack experience and expertise in making such extensive, complex economic valuations, as do lay jurors. For another, courts would be inundated with massive amounts of data, requiring extra weeks of trial in nearly every case. Resolving the meaning of this novel language could take years, as could the mandating of proper methods. The provision also invites an unseemly battle of "hired-gun" experts opining on the basis of indigestible quantities of economic data. Such an exercise might be successfully executed by an economic institution with massive resources and unlimited time, but hardly seems within the capability of already overburdened district courts. Appellate issue would also proliferate increasing complexity and delays on appeal, not to mention the risk of unsound decisions.
I am unaware of any convincing demonstration of the need for either provision, but even if the Committee ultimately concludes that they would represent an improvement over current patent policies embedded in Title 35 of the United States Code, their practicality seems to me very dubious. That is, the costs in delay and added attorneys fees for the parties and overburden for the courts would seem to outweigh any potential gains. Finally, even if the policy gains were viewed as significant, the courts as presently constituted simply cannot implement the provisions in a careful and timely manner, in my judgment.
MBHB has released Volume 5 of its snippets newsletter. snippets was originally started by a group of associates at MBHB (who are now partners). And, in many ways, Patently-O is a snippets spin-off. Contents of the most recent edition:
MedImmune’s Impact for Licensees by Josh Rich
Crafting the Cease and Desist Letter in Light of MedImmune by Dave Frischkorn and Rory Shea
E-Discovery FAQ by Richard Carden and Jennifer Kurcz
Trademark Infringement and Web Page Metadata by Eric Moran and Jim Suggs.
There is also a Special Alert discussing the impact of KSR v. Teleflex by Kevin Noonan, Jeremy Noe, Dan Williams, and Paul Kafadar.
Verizon v. Vonage: Many casual commentators have indicated their belief that Verizon’s VOIP patents are "junk." A jury held that they were nonobvious and the judge concurred. On Friday, the CAFC rejected Vonage’s plea for an immediate retrial based on the outcome of KSR v. Teleflex. The appeal continues.
There has been some discussion on Patently-O regarding European and Japanese patent blogs. My money is on IPEG (de Wit) and IP Kat (Phillips) as the best amongst several good in Europe and the UK. I don’t read Japanese, but I have not heard of anything comparable discussing Japanese patent law. The Japanese IP High Court does have a nice english website. Link.
The proposed 2007 Patent Reform Act (the “Leahy-Berman bill”)[1] details modifications to 35 USC § 284 that will most certainly reduce many patent infringement damages awards. Three portions of the Leahy-Berman bill concern monetary compensation: First, the bill seeks to limit reasonable royalty damages to the inventive aspects of the claim. Second, the bill restricts the use of the entire market value rule. Third, the bill expressly confirms a fact finder’s ability to rely on certain types of evidence to measure compensatory harm.[2]
Reasonable Royalty: Relationship to Contribution over the Prior Art and Consideration of Relevant Factors.
Perhaps the most striking change in the Leahy-Berman bill is a proposed limitation to reasonable royalty recovery. Under current law, a reasonable royalty is calculated by envisioning the result of the parties’ hypothetical negotiation for a license to the claimed invention at the time infringement began.[3] This determination is made by a fact finder (whether judge or jury) and is guided by the application of the Georgia Pacific fifteen-factor test.[4]
Current patent law permits a reasonable royalty calculation for use made of “the invention”—that is, an infringed claim. Of course, few–if any–patent claims are entirely novel. Most claims are an improvement over the prior art. Further, combination claims aggregate prior art elements in a novel way, or else a combination of novel elements together with prior art elements.
The Leahy-Berman bill specifically requires a limit on reasonable royalty recovery to the “economic value properly attributable to patent’s specific contributions over the prior art,”—that is, the inventive portion of the claim. Such an aggressive limit on monetary relief for patent infringement has not been apparent in the case law for decades.[5] A statement by Sen. Leahy (link) explains that this limitation is intended to provide for compensation solely for “the truly new ‘thing’ that the patent reflects,” in response to a concern that “litigation has not reliably produced damages awards in infringement cases that correspond to the value of the infringed patent.” This reasonable royalty limitation, which is likely to affect patents in all technology sectors, promises to be controversial.
Additionally, the Leahy-Berman bill asks trial courts to exercise more control over the fact finder’s consideration of the reasonable royalty and to create a more defined record for appellate review. Under current law, a typical reasonable royalty jury instruction lists all fifteen Georgia Pacific factors although fewer than all factors may be relevant in any particular case.[6] Further, a verdict form asks a jury to set a royalty figure, but jurors are rarely asked to create a record as to how their result was reached.
Under the Leahy-Berman bill, the trial court must “identify all factors relevant to the determination of a reasonable royalty” and then the fact finders are limited to consider only the factors identified by the district court in awarding a reasonable royalty. As an example of this provision in operation, a trial court might make an initial determination as to whether derivative or convoyed sales exist, such that the sixth factor of the Georgia Pacific test is relevant. If no such sales are in evidence, under the Leahy-Berman bill a trial court must preclude a jury’s consideration of this sixth factor.
Significantly, the proposed legislation’s use of the word “factors” does not appear to be limited to the Georgia Pacific factors specifically and presumably would apply to any factor that might be considered, including those listed in proposed section 284(a)(4).
Apportionment: The Entire Market Value Rule
As a general rule, patent damages are linked to the subject matter of the invention.[7] In some cases, an infringed claim relates to only one part of an entire multi-functional infringing product or system. In those circumstances, apportionment is the general rule—that is, damages are based on either lost profits or reasonable royalty apportioned for the infringing part as distinct from the remainder of a device that is outside the infringed claim’s scope. For example, damages for a claim directed to an improved windshield wiper are calculated based on the value of the infringing wiper, and not the sales price of the entire car into which the wiper is installed.
This general rule is modified under the judicially created “entire market value rule.” Where the entire market value rule applies, a patentee may recover damages based on the value of an entire apparatus or system that contains both infringing and additional, unpatented features.[8]
In “Let the Games Begin, Incentives To Innovation In The New Economy Of Intellectual Property Law,” I examine how the entire market value rule has recently received expansive application. Historically, the entire market value rule allowed recovery based on the price of entire product only where the “entire value” of the product was attributable to the infringing feature.[9] However, more recently, Federal Circuit cases more broadly apply the entire market value rule so long as there is a “functional relationship” between the infringing and the non-infringing components.[10] Further, patentees can recover for sales of non-infringing components where the patentee demonstrates a “reasonable probability” of selling the non-infringing components with the infringing part.[11]
An example of this expansive application of the entire market value rule can be seen in Lucent v. Newbridge Networks[12], where the district court determined that the jury’s addition of two software programs were properly included in the royalty base even where those programs were non-infringing, were not physically part of the infringing device and were not necessary for the device to operate. More recently, the Alcatel-Lucent verdict against Microsoft concerning the Windows® Media Player was reportedly calculated based on the average cost of a personal computer, and not limited to Microsoft’s Media Player or even Windows®.[13]
The Leahy-Berman bill provides an explicit, definitional standard for the application of the entire market value rule by requiring the patentee to show that the claim’s contribution is “the predominant basis for market demand” of an entire product or process. This standard reigns in the current expansive articulations of the entire market value rule by requiring a patentee to demonstrate that an infringing feature is the single primary reason users select an infringing product or process. If enacted, this subsection will have the overall effect of limiting damages to a particular infringing piece of a multifunctional product or process for both lost profits and reasonable royalty awards.
An open question exists as to the interaction between the proposed subsection (a)(2) governing reasonable royalties and (a)(3) governing the entire market value rule. Specifically, proposed subsection (a)(2) precludes recovery for the value of unpatented features of an infringing product or process. On the other hand, proposed subsection (a)(3) arguably permits such compensation where the inventive element is the “predominant basis for market demand.”
Marketplace Licensing and “Other Factors”.
The Leahy-Berman bill proposes one additional change, which appears of minor importance. That is, the bill expressly states that a fact finder may consider “the terms of a non-exclusive marketplace licensing of the invention” and any “other relevant factors” under the law in the damages determination. This subsection appears to be a codification of the existing law, which permits district courts wide discretion in considering evidence relevant to the damages determination.
Conclusion
As a whole, the Leahy-Berman bill represents an effort to refine and narrow available damages for patent infringement by building on an existing body of case law. The proposed changes to patent damages will undoubtedly present some challenging questions if adopted into law.
Two of the proposed sections require apportionment of inventive claimed matter from that outside the claim scope. The difficulty presented is that apportionment determinations can be difficult to implement. Perhaps the best evidence of this is the pre-1948 law, which relied on apportionment for calculating lost profits and had been described as a “complete failure of justice in almost every case in which supposed profits are recovered or recoverable” due to the time and complexity involved.[14]
Further, the Leahy-Berman bill has the potential for significant consequences for the licensing value of patents more generally. That is, to the extent that licensing determinations may reflect of potential results at trial, one might be expect that licensing negotiations will account for lowered damages the bill is passed into law. 2001).
The FTC and DOJ have jointly issued a monumental report on the relationship between patent rights and antitrust policy. Gems from the report:
Refusal to license patents to competitors – without more – will not raise antitrust concerns.
Conditional refusals, on the other hand, are subject to antitrust scrutiny.
Standard setting negotiations, cross-licensing, & patent pools are not per se violations, but are reviewed under the rule of reason framework.
The starting point for evaluating practices that extend beyond a patent’s expiration is an analysis of whether the patent in question confers market power. If so, these practices will be evaluated under the agencies’ traditional rule of reason framework, unless the agencies find a particular practice to be a sham cover for naked price fixing or market allocation.
Collecting royalties beyond a patent’s statutory term can be efficient.
Notably absent from the report are issues involving pharmaceutical reverse-payments where the two departments have recently knocked-heads.
Quanta v. LG Electronics (on Petition for Certiorari, 2007).
Chipmaker Intel licensed a set of patents owned by the Korean chaebol LG. By its terms, the license expressly does not extend to Intel’s customers and similarly does not cover any customer product made by combining an Intel product with a non-Intel product.
When LG sued a host of Intel-chip-based computer manufacturers for infringement, they complained of attempted double-dipping. According to the defendants, their use of licensed Intel-chips implicated the first sale doctrine of patent exhaustion.
First Sale Doctrine: Under the first sale doctrine, an authorized and unrestricted sale of a patented product exhausts the patent’s power over that particular product. Thus, a patentee cannot later sue a customer who uses the product in an infringing manner.
Proceedings: The lower court quickly found that the Intel “unrestricted” license and Intel’s sale of its chips under the license exhausted LG’s rights to any additional patent recovery. On appeal, the Court of Appeals for the Federal Circuit (CAFC) reversed, finding that when restrictions are placed on a license, “it is more reasonable to infer that the parties negotiated a price that reflects only the value of the ‘use’ rights conferred by the patentee.” The appellate panel found that there was no exhaustion because of express conditions on the use of Intel’s licensed products — specifically that the products could not be combined with non-Intel parts.
Now, the defendants have asked the Supreme Court to decide whether the CAFC erred by holding that LG’s “patent rights were not exhausted by its license agreement with Intel Corporation, and Intel’s subsequent sale of product under the license.” On April 16, the Supreme Court requested the views of the Solicitor General — a major step toward granting certiorari.
Quanta’s petition to the Supreme Court begins with hyperbole:
[LG Electronics] purchased a portfolio of patents … and now contends that those patents are infringed by every computer in the world.
Quanta’s argument is quite simple:
Intel sold chipsets to the petitioners;
Those sales were fully authorized under the LG license and were made without restriction;
Therefore, LG’s patent rights are exhausted.
Quanta goes on to say that under Supreme Court jurisprudence, a sale cannot be conditional. (No improper restraints on alienation). And, without citing Arizona Cartridge, the petition lists a set of upcoming problems if conditions for sale are allowed for patented items:
[T]he Federal Circuit’s new jurisprudence threatens to kick off a new era of “notices” attached to sold goods. Obvious candidates include “single use only,” “no use outside of Massachusetts,” “no repair,” “no resale,” or “no resale for less than the price of purchase.”
On the other side, LG points-out that Intel made a business decision not to cover its customers. Because of that decision, Intel received a cheaper license, but now the customers must make-up the difference.
[When there are no patent misuse or notice concerns,] parceling out of the exclusivity rights is simply a matter for negotiation in the marketplace, not for a legal override of commercially fashioned terms.
An amicus on behalf of Dell, HP and others identifies the origin of the current CAFC precedent: Mallinckrodt.
Mallinckrodt held that a restriction on the post-sale use and enjoyment of a patented article is enforceable under the patent laws as long as it does not “venture[] beyond the patent grant and into behavior having an anticompetitive effect not justifiable under the rule of reason.”
According to the Amicus (and Quanta), the Mallinckrodt decision and its progeny do not follow Supreme Court precedent as stated in Univis Lens.
Univis Lens … held that the authorized sale of an article manufactured “under the patent” exhausts all patent claims in the article regardless of any purported limitation on the subsequent use and enjoyment of the article. . . Univis Lens held that a condition on the post-sale use and enjoyment of a patented device violated the antitrust laws because it was not enforce-able under the patent laws, and thus was not protected against antitrust scrutiny. See 316 U.S. at 252 (“[t]he price fixing features of appellees’ licensing system, which are not within the protection of the patent law, violate the Sherman Act”).United States v. Univis Lens Co., 316 U.S. 241 (1942)
Notes
It turns out that the patents were originally issued to Wang Labs and are indeed quite broad. U.S. Patent Nos. 4,918,645; 5,077,733; 4,939,641; 5,379,379; and 5,892,509
Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992)
Jazz Photo v. ITC, 264 F.3d 1094 (Fed. Cir. 2001), cert. denied, 536 U.S. 950 (2002)(“United States patent rights are not exhausted by products of foreign provenance. To invoke the protection of the first sale doctrine, the authorized first sale must have occurred under the United States patent.”).
Vonage is the darling of network neutrality advocates. Using Vonage, millions of people have canceled their telephone service in favor of an IP-phone that connects through the Internet.
Last month, a jury determined that Vonage infringed three Verizon patents. (6,282,574, 6,104,711, 6,359,880). These patents all relate to various aspects of Internet telephony.
This is not a “troll” case — By definition, patent trolls are only looking for a payment in exchange for a patent license. Here, it is fairly clear that Verizon hopes that its patents will cause Vonage to close its doors. Thus, Verizon requested and was granted a permanent injunction.
Stays Pending Appeal: The general rule as stated in the Federal Rules of Civil Procedure [R. 62(a)] is that a permanent injunction “shall not be stayed during the period after its entry and until an appeal is taken or during the pendency of an appeal.” At its discretion, a district court can stay an injunction. In cases such as this, where the patents strike to the core of the defendant’s business, denial of a stay often ends the case because an appeal 3-months-later is too late. Under the Federal Rules of Appellate Procedure [R. 8(a)], a defendant may make a motion to the appellate panel for temporary relief after first showing that a lower court motion would have been “impractical.”
In Standard Havens, the Federal Circuit announced a four-factor test for considering whether to issue a stay pending appeal.
Likelihood of success on the merits of the appeal;
Irreparable harmed absent a stay;
Irreparable harm due to a stay (continued infringement); and
Public interest.
Vonage Partial Stay: The U.S. District Judge Claude Hilton (E.D.Va) issued the permanent injunction and but granted a partial stay. The judge’s decision allowed Vonage to continue in operation, but barred the upstart from signing-up any new customers.
Emergency Appeal: As it did in TiVo v. EchoStar, the Court of Appeals for the Federal Circuit (CAFC) immediately stayed the injunction (at the request of Vonage) and will hear an appeal regarding injunctive relief on April 24, 2007.
Novartis markets Famvir — a treatment for genital herpes. Hoping to get-in on the action, Teva filed an ANDA and later a declaratory judgment suit to invalidate the related Novartis patents. Teva’s action was dismissed after the generic manufacturer failed to establish “a reasonable apprehension of imminent suit.” (Meanwhile, Novartis had sued Teva on an additional patent covering Famvir).
Since the Supreme Court’s decision in MedImmune, however, the reasonable apprehension test has been eliminated. The new test, written generally in MedImmune, is “whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between the parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Under Article III of the constitution, the controversy must include an ‘injury-in-fact.’
Here, Novartis argued that there was no injury-in-fact because Novartis had not threatened suit on the patents in suit and that another ongoing patent suit against Teva was unrelated. The CAFC disagreed, finding that Novartis had created a controversy. In particular, a combination of the following actions were sufficient to create DJ Jurisdiction:
Novartis’ listing of the patents in the Orange Book. (“may not be sufficient” to create Article III jurisdiction)
Teva’s submission of an ANDA and certifying that it did not infringe. (“The very act of submitting an ANDA is an act of infringement.”)
Novartis’ ongoing lawsuit on a related patent covering the same drug. (“[R]elated litigation involving the same technology and the same parties is relevant in determining whether a justiciable declaratory judgment controversy exists on other related patents…. Novartis’ suit on [only one patent] leaves open the possibility of future litigation.”)
The court attempted to cabin the expanded jurisdiction scope by focusing on the facts:
“The type of legal uncertainty as to the legal status of Teva’s ANDA that Novartis has created by suing on only one of the five paragraph IV certified Famvir® patents listed in the Orange Book is a present injury sufficient for a justiciable controversy.”
Friedman Concurring: Senior Judge Friedman saw a simpler path to finding jurisdiction: Listing of the patents in the Orange Book combined with Teva’s noninfringement certification created an existing controversy.
“[B]y listing those five patents in the Orange Book, “Novartis represent[ed] that a ‘claim of patent infringement could reasonably be asserted if a person not licensed by the owner engaged in the manufacture, use or sale’ of generic famciclovir covered by the claims of its listed Famvir® patents.” Maj. Op. at 15. In its Abbreviated New Drug Application filed with the Food and Drug Administration, Teva certified … that “its drug did not infringe” any of the five Novartis Famvir® Orange Book patents or that the patents were invalid. There thus is an existing controversy between the parties over whether Teva’s generic version of Famvir® would infringe the four other Famvir® patents listed in the Orange Book, and whether these patents are valid.”
For the past several years, the US Patent Office has been encouraging practitioners to use its electronic file wrapper system. The system, known as PAIR, contains all sorts of information on pending and issued patents including: filing data, foreign priority, patent family data, and a full prosecution history.
Until this weekend PAIR operated through a static URL system. That meant that you could bookmark the PAIR page for your pending applications or e-mail the link to your clients, the inventors, or even potential licensees. I also used this feature to obtain information for my statistical studies and have written several bits of code to automatically download and preformat information regarding selected patents.
Now, without public notice or comment, the PTO has removed the static URL system and replaced it with a session-cookie based system that monitors a particular computer’s activities and does not allow for bookmarking or other delayed or preformatted access.
Advice: What would really be useful would be to have a system that allows for automatic updates of PAIR data, such as an RSS feed. Unfortunately, the PTO has taken a technological step backward.
SanDisk and ST were undergoing explicitly “friendly discussions” regarding cross-licensing of flash-memory technology rights. At a “settlement” meeting, ST showed a powerpoint presentation that mapped its claims to SanDisk technology and openly discussed SanDisk’s [alleged] infringement.
Apprehension: To avoid a declaratory judgment suit, ST’s attorney told SanDisk that “ST has absolutely no plan whatsoever to sue SanDisk.” SanDisk agreed that it would at least wait until the following Tuesday to sue. License proposals were exchanged, but SanDisk eventually didn’t like the deal. About one month after the initial meetings, SanDisk sued for declaratory judgment of noninfringement and invalidity.
Case Dismissed: The district court dismissed the case — finding no actual controversy under the Declaratory Judgment Act “because SanDisk did not have an objectively reasonable apprehension of suit.” Under Article III of the constitution, courts only have jurisdiction over actual “cases and controversies.” In regards to patent related declaratory judgment actions, the Federal Circuit has held that such a case or controversy only exists when a party has an objectively reasonable apprehension of being sued for patent infringement.
Deleting The Reasonable Apprehension Test: In the meantime, the Supreme Court decided MedImmune v. Genentech — tearing a large hole through the CAFC’s DJ reasonable apprehension test.
“The Supreme Court’s opinion in MedImmune represents a rejection of our reasonable apprehension of suit test.”
Under the CAFC’s new rule, a patentee can create a situation amenable to declaratory judgment jurisdiction by making statements far short of threatening legal action. In particular, DJ jurisdiction can exist when the patentee’s position vis-a-vis a DJ plaintiff either (1) indicate that the DJ plaintiff is taking illegal actions or (2) pushes the DJ plaintiff toward abandoning legitimate activities.
“Article III jurisdiction may be met where the patentee takes a position that puts the declaratory judgment plaintiff in the position of either pursuing arguably illegal behavior or abandoning that which he claims a right to do.”
In particular, the following should be closely considered when writing cease and desist letters:
“We hold only that where a patentee asserts rights under a patent based on certain identified ongoing or planned activity of another party, and where that party contends that it has the right to engage in the accused activity without license, an Article III case or controversy will arise and the party need not risk a suit for infringement by engaging in the identified activity before seeking a declaration of its legal rights.”
Here, the CAFC found that ST’s activities were sufficient to create DJ jurisdiction. In particular, the claim charts mapping out infringement along with ST’s discussion of SanDisk’s “infringement” were sufficient to create jurisdiction. There was no need to cut-off license negotiations prior to filing suit. Furthermore, ST’s self-serving statement that it did not intend to sue did “not moot the actual controversy created by its acts.”
Vacated and remanded.
Notes:
The rule still requires some activity by the patentee: “In the context of conduct prior to the existence of a license, declaratory judgment jurisdiction generally will not arise merely on the basis that a party learns of the existence of a patent owned by another or even perceives such a patent to pose a risk of infringement, without some affirmative act by the patentee.”
Concurrence: In a concurring opinion, Judge Bryson spells the fear of many patent holders: “it would appear that under the court’s standard virtually any invitation to take a paid license relating to the prospective licensee’s activities would give rise to an Article III case or controversy if the prospective licensee elects to assert that its conduct does not fall within the scope of the patent.”
The USPTO today released a proposed rewrite of how patent attorneys and agents may represent others before the PTO.
Role of a Patent Practitioner: The new rules broadly define the meaning of “practice before the Office” to include patent preparation & prosecution, providing advice regarding patents vs. other protections, and handling petitions & appeals within the PTO. Proposed 37 CFR 11.5.
Missing from the enumerated roles are activities incident to the preparation and prosecution of patent applications. The notes accompanying the proposal spell out that these incidental roles “are no longer included in the definition” of PTO practice. The primary incidental activity is the drafting of assignments and licenses.
According to the proposal, “a registered patent agent is not authorized by his or her registration to practice before the Office to draw up a contract or to select contract forms for a client relating to a patent, such as an assignment or a license.” The PTO is unsure whether merely ‘causing an assignment to be executed’ might be appropriate and asks for comment.
Attorneys Implicated As Well: As Russ Krajec pointed-out earlier [link], this reading of the rules would potentially impact patent attorneys as well since many represent a large number of out-of-state clients. (Are you practicing New York law when you advise your New York client about an assignment from its New York employee that will be interpreted under New York laws? Are you a licensed attorney in New York?)
Role of Foreign Drafters: “Nothing in this section proscribes a practitioner from employing non-practitioner assistants under the supervision of the practitioner to assist the practitioner in preparation of said presentations.” According to the notes, allowed activities include patent drafting.
What is Missing: The new rules leave out (1) any CLE suggestions as well as (2) any thought of an ethical duty to ensure access to legal representation (i.e., pro bono). I’m not a fan of mandates, but the patent bar (both attorneys and agents) is lacking in both of these areas. (You should note that the rules package is fairly comprehensive and covers many other details of practice in addition to those mentioned above.)
I would like to hear comments on (1) how attorneys and agents deal with state-representation issues; (2) has the idea of a nationwide practice became the de facto rule; (3) are bar associations too compliant with this activity; (4) are there examples of attorneys being disciplined for out-of-court activities in states where they have no clients?
Notes & Docs:
Any comments are due by May 29, 2007 and should be e-mailed to Harry Moatz: ethicsrules.comments@uspto.gov. (Mr. Moatz is the director of the OED). The PTO wants to find a good solution here.
For those of you with a memory, these proposed changes are a revision of the December 2003 proposal based on the 100+ comments received from the public.
If you leave an anonymous comment, please use a fake email address — otherwise we can see who you are. . .
RFR holds patents covering a rubberized filler used on train-tracks that run over streets. The parties had a settlement agreement in place, but Century decided to stop payment — apparently believing that RFR’s claims were “barred by the doctrines of patent exhaustion and implied license.”
RFR sued. Century answered the complaint and faxed a copy to RFR, but did not post a copy to the plaintiff.
RFR then got cold-feet and asked the court to dismiss the complaint without prejudice. Under the Federal Rules of Civil Procedure (R. 41(a)(1)), the plaintiff has a right to dismiss an action before the other side serves its answer or a motion for summary judgment.
In any event, the lower court didn’t allow RFR to dismiss the case — instead it granted Century’s 12(c) motion on the pleadings (with prejudice) and awarded attorney fees.
On appeal, the CAFC reversed, finding that Rule 41 “means what it says.” (applying 5th Circuit law). Because RFR had not been “served with the answer” it still had a right to dismiss its case.
So long as a plaintiff has not been served with an answer or a motion for summary judgment, the plaintiff need do no more than file a notice of dismissal to dismiss the case.
The CAFC also reversed the award of attorney fees, holding that a voluntary dismissal under R.41(a) does not result in a “prevailing party” as required by the enhanced damages statute (35 USC 285).
With Microsoft’s reply brief filed late last week, briefing is likely over in the battle over interpretation of 35 USC 271(f). Oral arguments will be held this Wednesday (February 21, 2007). The case boils down the following statement:
Whether, by exporting the golden masters containing machine-readable object code from which foreign replicated copies were made in foreign countries, installed overseas in foreign-made computers, and sold to foreign end users, Microsoft “supplie[d] . . . from the United States” the “components of a patented invention” in a manner that induced “the combination of such components outside of the United States.”
What is the component? Why Microsoft believes it should win on either theory of component:
If the component is the golden master itself, then it cannot be infringing because the golden master itself was not combined in an infringing manner as required by the statute.
If the component is the object code . . . well, object code cannot be a component because it is “an idea.”
As Hal Wegner recently noted in his widely-read newsletter, “It’s Hardball!” At oral arguments, two former Solicitors General will face-off Theodore Olson for Microsoft and Seth Waxman for AT&T. [Updated] Anything involving patent law at the Department of Justice goes through Daryl Joseffer and his boss Thomas Hungar. Joseffer will be given time at the arguments.
Note:
Microsoft presumptively argues that these two suggestions for the ‘component’ are mutually exclusive. The do not, however, explain why both the golden master and the object code could be simultaneous components.
I agree with Microsoft that AT&T’s Moby Dick analogy doesn’t sit well. . .
Professor Robert P. Merges makes much sense in his op-ed piece, Back to the Shadows, or Onward and Upward? Current Trends in Patent Law. We and thoughtful supporters of the patent system share much common ground.Professor Merges touches on numerous points where there is hardly any significant difference with this writer, including the domestic results of the eBay decision from last year.In his analysis of the Supreme Court, Professor Merges is correct that the Court is generally “pro business”, but it is another matter whether in some industries being “pro business” means being “pro-patent”.
“Pro Business” as Anti-Patent, a new Direction at the Court:Professor Merges is absolutely correct that the Supreme Court today is “pro-business”.Whether the majority is pro-patent is possible but not yet conclusively determined:It is too soon to tell. It is undeniable that there is a solid, anti-patent Supreme Court core consisting of Justices Breyer and Stevens.Justice Stevens’ anti-patent record reaches back to the mid-1970’s and is too well documented to question.Yet, Justice Breyer is apparently now the more enthusiastic anti-patent of the two; they are the only members of the Court in this century to have taken the view that the open door to § 101 patent-eligibility for “living” inventions in the Chakrabarty case should be narrowed, arguing in a dissent in J.E.M. that the utility patent law “does not apply to plants”.(1) Just last year, an anti-patent drumbeat manifested in the Breyer dissent from the Metabolite “DIG” (joined by Stevens) plus their joint participation in the Justice Kennedy concurrence in eBay further validates their anti-patent bias.Justice Souter joined both the Metabolite DIG dissent and the Kennedy eBay concurrence, but whether he is truly a solid part of an anti-patent core requires more data points; they may be forthcoming in shortly in KSR and in early Spring in Microsoft.Whether other members of the Court join this core remains to be seen.
Feeding this nascent anti-patent core are two dominant themes:First, while the Supreme Court is pro-business, a major segment of the business community is largely anti-patent, turning the patent system upside down:Under this twisted view of patents, being “anti-patent” may be “pro business”.Second, the patent jurisprudence of the Federal Circuit has created and continues to create problems that necessarily fuel further growth of an anti-patent sentiment.
I spent one summer of my youth in the lube & oil business. It ends up being a pretty fun occupation, although the pay is quite low.
Transclean is the exclusive licensee to a patent covering a machine for changing automatic transmission fluid. Bridgewood sold infringing machines, and lost an earlier patent battle with Transclean. (Although Bridgewood has apparently not paid-up yet).
Transclean — wanting its money — filed suit against end-users, including Jiffy Lube, who had purchased the Bridgewood products.
The courts, however, found Transcleans claims precluded. Under 8th Circuit claim preclusion law, an earlier suit bars a later asserted claim if:
the first suit resulted in a final judgment on the merits;
the prior judgment was rendered by a court of competent jurisdiction;
both suits involve the same cause of action; and
both suits involve the same parties or their privies.
Here, the only questionable factor was whether Jiffy was in privity with Bridgewood. In the 8th Circuit, privity is found when parties are closely related with nearly identical interests so that “it is fair to treat them as the same parties for the purpose of determining the preclusive effect of the first judgment.”
Generally, for this standard, a buyer-seller relationship does not create privity for claim preculsion and Jiffy would lose the appeal — except for Transclean’s litigation strategy . . . Earlier in the litigation, transclean had argued that Jiffy was in privity with the prior defendant Bridgewood. Using that ‘admission’ and the doctrine of judicial estoppel, the CAFC refused to hear Transclean’s new arguments about the lack of privity (even though it is clear that there was no privity in fact).
In this case, we find it appropriate to invoke judicial estoppel to hold Transclean to its concession that Bridgewood and its customers were in privity for claim preclusion purposes. The determination Transclean asks us to make—that Bridgewood and the defendants were not in privity for claim preclusion purposes—is clearly inconsistent with the position it advocated before the trial court and in its opening brief on appeal. . . . As part of its litigation strategy, Transclean made the choice to concede privity between Bridgewood and its customers after choosing not to join the customers in the first litigation. Under the circumstances presented by this case, we believe Transclean should be held to the consequences of its choices.
Standing: Only a "patentee" has standing to sue for patent infringement. In order to qualify as a "patentee" the plaintiff must possess "all substantial rights in the patent."
Propat sued RPost for patent infringement. The district court, however, dismissed the case for lack of standing — finding that Propat was merely a licensee and not in possession of sufficient patent. Propat appealed.
By its plain terms, the Propat’s license gives the company rights to initiate and enforce license agreements and to sue infringers. Prior to any lawsuits, however, Propat must "consult and obtain prior approval" from the superior interest-holder. The license can also be terminated for breach or other reasons. In addition, the license forbids transfer of Propat’s rights.
Based on the license agreement, the appellate panel agreed that Propat did not have sufficient rights to bring suit. The court pointed to several elements of the license in its decision:
An express provision retaining ownership in the superior interest-holder;
Superior party was required to pay any maintenance fees;
Superior party continued to enjoy some control over the use of the patent; and
Superior party held a right to terminate the license under certain circumstances.
In addition, the court reaffirmed that a "right to sue" clause in a license does not actually entitle the licensee to sue.
Planet Bingo is the exclusive licensee of two patents covering a way to play bingo. This game combines the numbers with an indicator (such as the color red) to give enhanced awards. The patent claims a “predetermined” winning combination, and that is where the dispute lies.
In the accused game of “rainbow bingo,” the color of the first ball chosen serves as the indicator. Since that color is not known before the game begins, the court found it was not “predetermined.” as required by the claims.
Planet Bingo, however, asserted infringement under the DOE. Although the defendant’s indicator color is not known before the game begins, it is known immediately after the first bingo ball is drawn — something that is equivalent. The CAFC disagreed, finding that under Warner-Jenkinson, a color that is “predetermined” cannot, as a matter of law, be equivalent to a color that is selected immediately after the game starts.
Here, the court focused particular attention on foreseeability of the asserted equivalent — apparently assuming that most variations in the bingo-arts would be foreseeable.
Go Medical owns a patent on a urinary catheter with a specialized sheath designed to reduce the chance of bacterial contamination. The parties entered into a long-term licensing contract and the defendant began manufacturing and selling the device. In another lawsuit, Go’s patent was found invalid, but that finding was later reversed on appeal. Several months after the invalidity finding (but before its reversal), the defendant stopped paying royalties — placing them in escrow. Go eventually sued for infringement, but the patent was found invalid. (invalidity affirmed on appeal).
The defendant then asked for some of its money back — arguing that the it should not have to pay for the licensing of an invalid patent. Under Kohle, however, a licensee is liable for contract damages up to the date “the licensee first challenges the validity of the patent.”
In other words, a licensee “cannot invoke the protection of the Lear doctrine until it (i) actually ceases payment of royalties, and (ii) provides notice to the licensor that the reason for ceasing payment of royalties is because it has deemed the relevant claims to be invalid.”
Thus, according to the CAFC, the original invalidity finding did not relieve the defendant of its responsibilities to continue to pay its license fees. Further, the defendant’s movement of payments to escrow was not sufficient to avoid license fees because the defendant did not explicitly state that it was “ceasing payments [because it deemed the] patent to be invalid.” Merely placing royalty payments in escrow “until the validity of the patent was resolved on appeal” is insufficient to relieve a licensee from license payments.
PharmaStem Therapeutics, Inc. v. Viacell, Inc. (Fed. Cir. 2007)(Read Part I of our analysis)
CSIRO v. Buffalo Technology (
Monsanto is one of the few patentees that sues individuals for patent infringement. In Monsanto’s case, the infringers are farmers who allegedly save & replant Monsanto’s patented genetically modified seeds violation of their “Technology Agreement”. When McFarling was found liable, the Missouri jury assessed damages of $40 per seed-bag and the court issued an injunction. 
A response to Merges, 
“Pro Business” as Anti-Patent, a new Direction at the Court
Transclean v. Jiffy Lube (Fed. Cir. 2007). 
Planet Bingo v. Gametech (Fed. Cir. 2006). 
Go Medical v. Inmed (