Tag Archives: Licenses

Arbitration: Incorporation of AAA rules in license creates clear and unmistakable intent to arbitrate

Patent, Patent Cases 2006

Qualcomm v. Nokia (Fed. Cir. 2006).

A 2001 license agreement between Nokia and Qualcomm includes an arbitration clause.  The agreement apparently does not cover all of Nokia’s products, and in 2005, and Qualcomm sued Nokia for patent infringement. The parties disputed whether the arbitration clause should apply here. Writing for a two-judge majority, Judge Prost explained that the parties “clearly and unmistakably” intended that the patent questions be arbitrated instead of a court as evidenced by the agreement’s incorporation of the AAA rules.

On remand, the district court will send the dispute to arbitration unless the arguments supporting arbitrability of the issues would be “wholly groundless.”

Notes:

Patently-O TidBits

Patent
  • ScreenShot037Last month, TiVo won its patent case against EchoStar.  The district court judge issued a permanent injunction and refused to stay the injunction pending appeal. In an emergency action, the CAFC immediately issued a temporary stay. Now, the CAFC has reportedly determined that the stay will remain in force until the appeal is concluded. [Can someone forward the order to dcrouch@gmail.com]. [Background]
  • Attorney David Donoghue continues the trend of local IP litigation blogs — he’s focusing on Chicago district court cases here. He also continues the trend of using the industry leading law blog developer – LexBlog.
  • My former property professor Richard Epstein recently gave an excellent talk on the “big tent” theory of property that spans the space from real property to water rights and, of course, intellectual property. [video] [paper — very accessible]. Highlights:
  • Supreme Court made a “complete intellectual hash” in the eBay case.
  • Troll problem: unfortunately dominated the discussion because this is a fringe issue.
  • Fewer injunctions lead to compulsory licenses, and the damage model for compulsory licensing is pretty poor. [forced business relations don’t work well anyway].
  • The potential for troll-like holdouts are better than forced exchanges.
  • Lear should be overturned — contract rights should be strong because that gets you better licensing transactions. (these are hard enough deals to complete without the ambiguity added by Lear).
  • Independent Ink: Patents do not confer a monopoly — that was a correct decision because there are many cases where patents do not confer any economic control over a market.

eBay v. MercExchange Unanswered Question

Patent

Here are a handful of unanswered questions that leave us a bit in limbo post-ebay.

  • What (if any) presumption of irreparable harm is associated with an infringed patent? (in z4 no presumption was found)
  • How should willfulness of the infringement factor into the injunction analysis? If it “should” be factored-in, which of the four factors would it fall under? (In z4, willfulness was not considered a factor).
  • The Supreme Court ruled that a plaintiff’s willingness to license its patents and its lack of commercial activity in practicing the patents could not be sufficient to establish that the patent holder would not suffer irreparable harm if an injunction did not issue — but to what extent can those weigh in favor of an injunction.
  • Those of us having a law & economics background have difficulty with the concept of irreparable harm because the basis of idea that “most patent-related injuries can be fully compensated by some ex post cash payment” (Lichtman).  Couple that with Professor Laycock’s ground-breaking worth on the Death of Irreparable Injury where he shows that irreparable injury jurisprudence is for the most part a sham that does not alter the outcome. Bottom line, when will there be irreparable injury? What we do know is that failure to work and a willingness to license do not preclude a finding of irreparable harm.
  • How will irreparable for permanent injunction differ from the analysis during a preliminary injunction determination?
  • Once an injunction is denied, how will we calculate damages and is ongoing infringement willful?

Injunction Granted to TiVo; Injunction Denied in Favor of Toyota.

Patent, Patent Cases 2006

TiVo v. EchoStar (E.D.Tex. 2006)

TiVo has been granted an injunction against EchoStar stopping it from installing or selling infringing DVR’s and ordering EchoStar to disable DVR functionality in the majority of its installed customer equipment. In granting the injunction, the most compelling factor appears to be that TiVo and EchoStar compete head to head in the DVR marketplace.

Defendants compete directly with Plaintiff – Defendants market their infringing products to potential DVR customers as an alternative to purchasing Plaintiff’s DVRs. The availability of the infringing products leads to loss of market share for Plaintiff’s products.

The court did not stay the injunction pending appeal. According to the district court, “[w]ithout a stronger showing that the jury’s verdict will be overturned in its entirety on appeal . . . allowing the ongoing infringement is not within the public’s interest.” However, in an emergency appeal, Chief Judge Michel has granted a temporary stay to “preserve the status quo while the court is considering the parties papers.” Briefing on the Stay will be completed by the end of August.

Paice v. Toyota (E.D.Tex. 2006).

One day earlier, the same Judge (Judge David Folsum) denied Paice its injunction against Toyota. Toyota was found to infringe Paice’s patents on hybrid vehicles under the doctrine of equivalents.  Paice, however, does not manufacture or sell any vehicles, but is geared toward licensing.  Because Paice could not show how its licensing activities would be irreparably harmed from the injunction (and because Toyota would certainly be irreparably harmed) the court denied the request for an injunction. In its findings, the Court made the following rulings:

  • A patentee has no presumption of irreparable harm even after the patent is found valid and infringed.
  • The patents relate to only a small portion of the Toyota products — thus an injunction would be quite onerous on Toyota.
  • Plaintiffs have offered to license the technology to Toyota — a demonstration that money is sufficient.

The court did not explicitly assign any weight to the fact that (1) infringement was only under the DOE and (2) infringement was not found to be willful.  There is some precedential weight, however, to the position that a strong showing of infringement should lead to a greater likelihood of a permanent injunction.

Documents:

Monsanto’s Roundup Ready Patents Survive Appeal

Patent, Patent Cases 2006

Monsanto v. Scruggs (Fed. Cir. 2006).

Back in 2000, Monsanto sued Scruggs for infringement of its patents covering Roundup Ready (R) soybeans and cotton. Scruggs, a Mississippi farmer, had allegedly replanted seeds that he had grown on his farm. Monsanto won the infringement case on summary judgment and an injunction issued.

First Sale Doctrine: On appeal, Scruggs argued that because he purchased the seeds in an unrestricted sale, he was entitled to use those seeds in an unencumbered fashion under the doctrine of patent exhaustion. Scruggs’ first sale argument failed for two reasons. First, although Scruggs never obtained a license to use the seeds, he was supposed to under Monsanto policy — therefore the sale was not “unrestricted.” Second, as the CAFC held in McFarling, rights to second generation seeds are lost by unencombered sale of first generation seeds.

The fact that a patented technology can replicate itself does not give a purchaser the right to use replicated copies of the technology. Applying the first sale doctrine to subsequent generations of self-replicating technology would eviscerate the rights of the patent holder.

Antitrust Counterclaims: As a countermeasure, Scruggs asserted that Monsanto was misusing its patents and violating antitrust laws through its licensing requirements that include “an exclusivity provision, a no replant policy, a no research policy, . . . the payment of a technology fee,” and use of Roundup brand herbicide (with certain limitations). The CAFC made quick-work of these arguments — many of which were previously decided in the 2004 MacFarling case. By rearguing the previously decided in MacFarling, Scruggs appears to be set-up for a petition for certiorari based on those general principles.

In dissent from the antitrust conclusion, Judge Dyk argued Monsanto’s Roundup requirement to be unlawful tying.  More particularly, the requirement to use Roundup branded herbicide should be considered unlawful tying even if not other manufactuer had regulatory approval because that license term would chill activity of competitors in seeking their own regulatory approval.

A potential herbicide competitor thus would be concerned that, even if it secured government approval of its product, use of the approved herbicide would still be barred under the contracts. The elimination of such potential competition is not permissible under the antitrust laws.

Interestingly, neither the majority nor the dissent questioned the “no research” requirement of the license that prohibited research and/or experimentation on the seeds.  In fact, all three judges explicity agreed that restriction is a legitimate “field of use” restriction.  (Perhaps legitimizing a contract-based anti-circumvention requirement à la DMCA.).

The CAFC appears to have also ignored the State of Mississippi’s amicus brief arguing, inter alia,

Permanent Injunction: The lower court had issued a permanent injunction based on the CAFC’s “traditional rule.”  Based on eBay, the CAFC vacated the permanent injunction and remaneded for a full reconsideration of that final issue.

(more…)

Injunction Denied — Compulsory License Granted

Patent, Patent Cases 2006

Finisar v. DirectTV Group (E.D. Tex. 2006).

A jury found willful infringement by DirectTV.  However, in the post-trial hearing, the court denied Finisar’s motion for injunctive relief and instead granted a compulsory license.

Reasoning from the transcript:

  • Patentee has no irreparable harm because it never made or licensed the invention and DirectTV has money to pay damages. [The court found no presumption of irreparable harm.]
  • Because there are only two major competitors in the "market" (DirectTV and EchoStar), an injunction against DirectTV could create a de facto monopoly in EchoStar’s favor.
  • A compulsory license will adequately compensate Finisar — "especially since Finisar never had the will nor the means to implement the patent itself."
  • Hardship to DirectTV would be enormous. Thousands of employees out of work . . . 15 million lose the ability to watch TV . . . ripple effect . . . "some would say this is a blessing."

Documents:

  • Kathi Lutton and Ruffin Cordell of Fish & Richardson have provided several key documents here.

Foreign Soverign Immunity Waived By Patent License Negotiations

Patent, Patent Cases 2006,

CsiroIntel and Microsoft v. Commonwealth Scientific (CSIRO) (Fed. Cir. 2006).

Under the Foreign Soverign Immunity Act (FSIA), a foreign state is presumptively immune from the jurisdiction of United States courts. A federal court therefore has no subject-matter jurisdiction over a claim against a foreign state unless the case falls within a specified exception. 28 U.S.C. §§ 1602-1611. 

Intel and Microsoft sued the Australian Commonwealth Scientific and Industrial Research Organisation ("CSIRO") for declaratory judgment of non-infringement. CSIRO is Australia’s national science agency and claimed immunity under the FSIA. The district court found jurisdiction, and the appeal was heard on interlocutory review.

Level of Review: Without determining whether to apply CAFC or 9th Circuit law, the appellate panel first determined that the existence of immunity are questions of law that are reviewed de novo.

Commercial Activity: In a question of first impression, CSIRO argued that its extensive patent licensing negotiations should not qualify as a commercial activity exception to the FSIA when those do not result in fully-executed and binding contracts. The CAFC flatly rejected that argument — finding that commercial activity is broadly defined under the FSIA — noting in the Congressional record that "[t]he courts would have a great deal of latitude in determining what is a ‘commercial activity’ for purposes of this bill."

It is possible to extrapolate this case to argue that merely obtaining a U.S. patent is also commercial activity.

CSIRO’s acts of (1) obtaining a United States patent and then (2) enforcing its patent so it could reap the profits thereof—whether by threatening litigation or by proffering licenses to putative infringers—certainly fall within the latter category [of commercial activities]. Indeed, we have expressly recognized, in another context, that "a patentee’s attempt to conduct license negotiations is a commercial activity."

Affirmed and dismissed.

Read the case: Link

Method Claims Not Exhausted By Sale of Patented Device

Patent, Patent Cases 2006

LG Electronics (LGE) v. BizCom (Fed. Cir. 2006, 05-1261).

LGE sued a bunch of Intel customers for infringing use of a chipset.  Intel itself was not a defendant because it is licensed to sell the products under an agreement with LGE.  Under the agreement, however, Intel’s customers were not permitted to combine the products with non-Intel products.

LGE lost on summary judgment — the district court found that LGE’s rights were "exhausted" as to all but one asserted patent and that LGE was contractually barred from suing over the remaining patent. The appeal addressed, inter alia, implied licenses and exhaustion.

Implied License: A defendant can avoid liability for patent infringement by showing that it had an implied license to practice the patented invention.  To prevail, the defendant must prove that its products (1) have no noninfringing uses and that (2) the circumstances plainly suggest that an implied license should be inferred. Here, Intel expressly informed the parties that they were not licensed to combine the Intel products with other products — thus those combinations could not be considered licensed in any way.

Exhaustion: The patent exhaustion doctrine is triggered by an unconditional sale of a patented item — this is commonly termed the "first sale doctrine."

The theory behind this rule is that in such a transaction, the patentee has bargained for, and received, an amount equal to the full value of the goods.

The exhaustion doctrine does not, however, apply to express conditions made upon that original sale.

"In such a transaction, 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."

Exhaustion – System Claims: Regarding LGE’s system claims, the appellate panel found that there was no exhaustion because there were express conditions on the use of Intel’s licensed products — specifically that they could not be combined with non-Intel parts.

Although Intel was free to sell its microprocessors and chipsets, those sales were conditional, and Intel’s customers were expressly prohibited from infringing LGE’s combination patents.

Exhaustion – Method Claims: Here, the CAFC made their statement short and to-the-point: "the sale of a device does not exhaust a patentee’s rights in its method claims."

Small Entity Status — be careful of non-exclusive licenses.

Patent, Patent Cases 2006, Patent Q&A

Is a company’s “small entity” status with the PTO put in jeopardy by granting a non-exclusive license to a major corporation — assuming that the non-exclusive license does not convey any right to exclude others from making or using the invention?

According to 37 CFR 1.27, a small entity includes:

an inventor . . . who has not assigned, granted, conveyed, or licensed, and is under no obligation under contract or law to assign, grant, convey, or license, any rights in the invention. . . .

MPEP 509.02 defines “rights in the invention” in this section of the rules as “the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States.”  This therefore appears to indicate that a non-exclusive license to a large entity that does not convey any right to exclude others would not fall within rule. However, if you read further in the MPEP, you notice a discrepancy involving non-exclusive licenses:

A grant of a non-exclusive license to a “non-small” entity will disqualify applicant from claiming small entity status. See Ulead Systems, Inc. v. Lex Computer & Management Corp., 351 F.3d 1139, 1142 (Fed. Cir. 2003).

In yesterday’s decision in Nilssen v. Osram Sylvania (N.D. Ill. 2006), the district court found Nilssen’s patents unenforceable because, inter alia, Nilssen had failed to pay a large entity fee even though the patents-in-suit were nonexclusively licensed to Philips Electronics.

In addition, the patents were unenforceable due to: (a) a patentability declaration submitted by an undisclosed business partner; (b) Nilssen’s admission that he “opposes government fees, taxes, and the present legal system;” (c) Nilssen’s improper priority claims; (d) failure to disclose ongoing litigation to the PTO; (e) failure to disclose material prior art; and (f) unclean hands due a failure of decorum and courtesy in interactions with the PTO.

Regarding Nilssen’s unclean hands, the Court cited a petition to the Commissioner that reads as follows:

a) [The Examiner] cannot be characterized as being skilled in the arts to which subject applications pertain . . .
b) [The Examiner] is severely deficient in his understanding and use of reason and logic . . .
c) [The Examiner] has an inadequate command of the English language . . .
d) [The Examiner] has repeatedly shown himself to be overtly non-cooperative and non-caring.

CAFC Denies Pro Se Intervenor Rights

Patent, Patent Cases 2006

Motionless Keyboard Co. v. Microsoft Corp., (Fed. Cir. 2006) (non-precedential ruling)

By Tom Loos,

The CAFC upheld a ruling by the Oregon DC denying an individual inventor to intervene in behalf of a corporation. 

Motionless Keyboard Co.(“MKC”) sued Microsoft for patent infringement.  Microsoft prevailed at summary judgment.  Thomas L. Gambaro, inventor of the patents and MKC’s majority share holder, then attempted to intervene under Fed. R. Civ. P. Rule 24. Gambaro argued he needed to appear as “Pro Se to continue to represent the Plaintiff” since “counsel has withdrawn.” 

The CAFC cited 28 U.S.C. § 1654 and Rowland v. Calif. Men’s Colony, 506 U.S. 194 (1993) to state that “a corporation may appear in federal court only if represented by licensed counsel.”  Applying 9th Circuit law, the CAFC held “to allow Gambaro…to intervene rather than hire replacement counsel ‘would eviscerate section 1654’” (quote from United States v. High Country Broad. Co., 3. F.3d 1244, 1245 (9th Cir. 1993)).

After losing summary judgment, MKC transferred its patent rights to Gambaro.  The CAFC held that “Gambaro may have an interest allowing him to bring an infringement action in his own name [based on the patents], but he may not participate in the case filed by MKC as the plaintiff.”

(more…)

Settlement and Stipulated Dismissal (with prejudice) Precludes Later Validity Challenge

Patent

AIPLATalk219Pactiv Corp. v. Dow Chemical Co. (Fed. Cir. 2006)

By Tom Loos,

The Federal Circuit has upheld the NDNY’s ruling that a settlement leading to dismissal of  a complaint with prejudice precludes Pactiv from re-challenging Dow’s patents.

< ?xml:namespace prefix ="" o /> 

In 1995, Dow sued Pactiv for infringement of two patents related to manufacturing polyethylene foam. This suit settled in 1998 and Dow’s complaint was consequently dismissed with prejudice.  In 2002, Pactiv stopped paying royalties as required by the agreement.  In late 2003, Pactiv followed up by filing a declaratory judgment action asserting the patents were invalid, unenforceable, and their own non-infringement.   Dow moved for dismissal under Rule 12(b)(6), claiming res judicata.  The district court agreed with Dow that Pactiv’s action was barred by the prior final judgment since the settlement did not explicitly reserve Pactiv’s right to future litigation.

 

The CAFC found that claim preclusion is not specific to patent cases and thus applied the local circuit law to the case. Both the 2nd Circuit and the CAFC agree a dismissal with prejudice is a judgment on the merits for purposes of claim preclusion.  Where there is a settlement, the CAFC found an express reservation to litigate is required for a settling party to relitigate a claim otherwise barred by res judicata. 

 

Pactiv also claimed they were not given a full and fair opportunity to litigate.  Pactiv argued that Dow’s expert’s data “had been fabricated” and that Pactiv would not have settled if it had known the data were false.  The CAFC agreed that failure to receive a full and fair opportunity to litigate would be a valid defense to issue preclusion.  However, the CAFC held that “res judicata was precluded only where there was a denial of due process.”  Since the 1998 dismissal with prejudice met due process, the judgment was upheld.

 

What could Pactiv have done once they learned the circumstances of the expert’s report?  The CAFC suggested they seek relief under Rule 60(b). Rule 60(b) provides one year to reopen final judgments due to mistake, new evidence, fraud, etc.

 

Practice tip for those representing patentees: Condition settlements on receiving a stipulated dismissal of suit with prejudice.

 

Notes:

  • This post was written by Tom Loos, PhD.  Tom is a summer associate at MBHB and a law student at the University of Michigan School of Law.  He plans to graduate in 2007.
  • Dennis Crouch’s Comments: This case takes another step away from the Supreme Court’ 1969 public policy decision in Lear v. Adkins, which held that a licensee did not waive its right to later challenge the validity of a patent.  Lear is also the focus of an upcoming Supreme Court case of MedImmune v. Genentech.  The MedImmune case questions whether a licensee can challenge a patent’s validity while continuing to pay royalties.

Inventor’s Post-filing Publication Disparaging Invention Leaves Patent Unenforceable

Patent, Patent Cases 2006, , ,

AIPLATalk217Research Corporation Technologies v. Microsoft (D. Az. 2006).

After a bench trial, Arizona District Court Judge Manual Real of found that RCT’s patents were unenforceable based on inequitable conduct that occurred during prosecution of the patents in suit. And, because it was an “exceptional case,” the judge granted Microsoft’s request for $8 million in attorney fees.

Back in 2001, RCT sued Microsoft for its patents directed to a “blue noise mask” used in halftoning digital images.  The new procedure was touted in the patent application as being “visually pleasing” and lacking “low frequency graininess at every level of gray.”  At the same time the inventors published a paper that reported resulted of “visually annoying clumps” with graininess.  In the paper, the inventors reportedly rejected the claimed algorithm in favor of another technique that was inconsistent with the patent.  That paper was never submitted to the PTO. 

The court found this seemingly contradictory information material because a “reasonable Patent Examiner clearly would have considered [the contradictory information] important to at least the written description and enablement requirement for patentability.”  For intent, the judge found that:

It is not credible that they did not know that a reasonable Examiner would consider it important to know that patent applicants’ reported efforts to practice the applications’ disclosed No K technique had led to “visually annoying clumps,” not the “visually pleasing” images promised by the patent applications and their patent claims.” 

In addition, the inventors were awful on the stand — one was “not credible” and the other “evasive.” Thus, further supporting the finding of intent to mislead the PTO.

AIPLATalk218According to a release by Microsoft’s attorney John Vandenberg*, the patents previously had been asserted against Hewlett-Packard Company, Seiko Epson Corporation, and Lexmark International, each of whom had settled out of court and taken a license. In awarding Microsoft attorney fees, the Court found it to be an “exceptional case” and that RCT knew or should have known of the inequitable conduct before the Patent Office. 

A couple of readers wrote-in to identify Judge Manny Real as a legendary old-school federal judge, and former chief judge in the central district of California. It appears that Judge Real is sitting by designation for this patent case. 

Supreme Court Vacates eBay Injunction

Patent, Patent Cases 2006,

EBayITIn a landmark unanimous decision, the U.S. Supreme Court has reportedly vacated the appellate court’s decision against eBay — putting an end to the “general rule” that a permanent injunction should follow a finding of infringement of a valid patent.  Rather, the opinion by Justice Clarence Thomas rules that the decision of “whether an injunction should issue” is within the trial court’s discretion. Concurring opinions by Chief Justice John Roberts and Justice Anthony Kennedy.

Background: At the district court, eBay was found to infringe MercExchange’s valid patent. However, the district court refused to issue an injunction to stop the ongoing infringement because MercExchange’s patent was a disfavored type (business method), because MercExchange was willing to provide a license, and because of the contentious nature of the litigation, any injunction would be difficult to enforce.  On appeal, the Federal Circuit (CAFC) reversed, finding that the lower court “did not provide any persuasive reason that this case is sufficiently exceptional to justify the denial of a permanent injunction.”  Most controversially, the CAFC concluded with its “general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances.”

eBay v. MercExchange ___ U.S. ___, No. 05–131 (2006).

Unanimous Opinion: The decision relies on the traditional “four-factor test” for determining whether to issue a permanent injunction:

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. . . . These familiar principles apply with equal force to disputes arising under the Patent Act.

The Court indicated that these factors must be applied on a case by case basis – noting that “traditional equitable principles do not permit such broad classifications.”

The Supreme Court flatly rejected the argument that patentee’s who only license should not qualify for injunctive relief — finding that “[s]uch patent holders may be able to satisfy the traditional four-factor test, and we see no basis for categorically denying them the opportunity to do so. To the extent that the District Court adopted such a categorical rule, then, its analysis cannot be squared with the principles of equity adopted by Congress.”

In its final word, the court emphasized that the “decision whether to grant or deny injunctive relief rests within the equitable discretion of the district courts, and that such discretion must be exercised consistent with traditional principles of equity.”

Roberts, CJ, Scalia, J, and Ginsberg, J, Concurring: Chief Justice Roberts provides a short concurring opinion that appears to caution district court judges in their “discretion.”

[T]here is a difference between exercising equitable discretion pursuant to the established four-factor test and writing on an entirely clean slate. .Discretion is not whim, and limiting discretion according to legal standards helps promote the basic principle of justice that like cases should be decided alike.

 The opinion notes that from “at least the early 19th century, courts have granted injunctive relief upon a finding of infringement in the vast majority of patent cases.”  According to the Chief Justice, this long tradition of injunctive relief should be awarded great weight.

Kennedy, J, Stevens, J, Souter, J, and Breyer, J, Concurring: These four Justices feel that times have changes, and that the tradition of injunctive relief might no longer be so compelling.  The Kennedy opinion is focused primarily on non-manufacturing patent holding companies and business method type patents:

In cases now arising trial courts should bear in mind that in many instances the nature of the patent being enforced and the economic function of the patent holder present considerations quite unlike earlier cases. An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees. . . . For these firms, an injunction, and the potentially serious sanctions arising from its violation, can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent. When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest. In addition injunctive relief may have different consequences for the burgeoning number of patents over business methods, which were not of much economic and legal significance in earlier times. The potential vagueness and suspect validity of some of these patents may affect the calculus under the four-factor test.

The equitable discretion over injunctions, granted by the Patent Act, is well suited to allow courts to adapt to the rapid technological and legal developments in the patent system. For these reasons it should be recognized that district courts must determine whether past practice fits the circumstances of the cases before them. With these observations, I join the opinion of the Court.

In the end: The court found problems with both the CAFC decision and the district court decision.  For those concerned about the actual parties (MercExchange and eBay), we’ll have to wait to see a new decision from the lower courts.

Crouch’s off the cuff analysis: I had predicted that the Court would apply equitable principles, but would announce that that injunctions should continue to issue in most cases.  [Prediction].  As it turns out, that decision is found in the Roberts Concurrence, but not in the majority. (Thus, I lost my $1 bet).  I also had not predicted that four Justices (Kennedy, Stevens, Souter, and Breyer) would come out so strongly against injunctions.  This decision may indicate a real shift in Patent Law and the strength of an individual patent.  My general advice to litigators: The injunction is now a big issue — make sure that you focus on evidence of irreparable harm from the beginning — including your cease & desist letter or initial complaint.  My colleague Tom Fairhall correctly points out that this decision adds yet another layer of uncertainty to patent litigation.

Based on this decision, it is now clear that the value of a patent does depend upon the identity of the owner. For instance, an industry competitor will be able to show irreparable injury much more easily than would a university or individual inventor who has no plans to manufacture a product.  Because the industry competitor has a higher likelihood of obtaining an injunction, it should be willing to pay more for the patent.  Interestingly, this valuation gap may spur more licenses and patent transfers.

Notes:

Terminal Disclaimer Does Not Negate Patent Term Extension

Patent, Patent Cases 2006

AIPLATalk200King Pharma v. Teva, 78 USPQ2d 1237 (D.N.J. 2006).

In a pharmaceutical patent dispute, Teva argued that Wyeth’s patent on zaleplon drug products (Sonata) had expired because of a terminal disclaimer. Wyeth (and its exclusive licensee King) argued that patent’s term was ongoing because of a Patent Term Extension due to FDA regulatory review delay.

Under 35 U.S.C. 156(a), the term of a patent “shall be extended” after a series of provisions are satisfied.  The district court found the language of the statute unambiguous and gives the court “no discretion.”

Thus, if the enumerated conditions are satisfied, the patentee is entitled to a term extension calculated pursuant to Section 156.

Teva’s motion to dismiss was consequently denied because “a terminally disclaimed patent is eligible for extension under [Section] 156.”

 

CAFC: Damage Recovery for Infringing Sales Precluded Later Recovery for Infringing Use

Patent, Patent Cases 2006

AIPLATalk193Glenayre Electronics v. Jackson (Fed. Cir. 2006, 04–1568).

Jackson won a $12 million jury verdict for infringement.  However, those damages were remitted by the court who found that “the jury’s $12,000,000 damages award reflects a whopping royalty rate of 30%, a rate five times greater than the very highest rate disclosed in any license agreement offered into evidence.” Instead, the lower court found that the maximum reasonable royalty would be 6% of sales plus a $250,000 lump-sum payment, and proposed a remittitur to $2.65 million as an alternative to a new trial. Jackson accepted the new award, but also pursued claims against Glenayre for indirect infringement based on activity of its customers. The lower court refused to allow those claims to proceed — finding that Jackson had been fully compensated by the initial verdict.

On appeal, the CAFC found that Jackson could not “double dip.”

Jackson’s theory is that he has an absolute, inviolable right to pursue an additional damages award based on Glenayre’s customers’ use of infringing products sold by Glenayre, even though he has already collected compensation for direct infringement by Glenayre because of the same sales. We disagree.

It is possible that a plaintiff could get separate damages for sales and use.  However, in this case, Jackson had presented evidence of customer use during the original trial, and the CAFC found that those damages were included within the $2.65 million award calculation.

Judge Newman dissents:

The district court, today affirmed by the panel majority, incorrectly held that there cannot be contributory infringement by a direct infringer. From this ruling and its flawed premises, I respectfully dissent. . .

The panel majority departs in major ways from precedent, in holding that, as a matter of law, there is no liability for a manufacturer’s contributory infringement, or even for direct infringement by users of an infringing device, when damages have been accepted that are limited to the manufacturer’s direct infringement. See Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476 (1964) (Aro II). . .  

The [Supreme] Court (in Birdsell) established that while sales by the patentee or an authorized licensee can trigger the first sale doctrine, the collection of damages for infringement does not. Payment of damages by an infringing manufacturer is not an automatic “implied license” to itself or others to continue the infringement.

 

Personal Jurisdiction over Patent Holder Arises Based on Licensee’s Activities

Patent, Patent Cases 2006, ,

Breckenridge Pharmaceuticals v. Metabolite Labs. (Fed. Cir. 2006, 05–1121).

Metabolite (patent holder) and PamLab (exclusive licensee) sued Breckenridge in Colorado — asking for a TRO stopping Breckenridge from selling its Folbee product, which is similar to PamLab’s FOLTX.  The plaintiffs, however, dismissed their suit after their motion for TRO was denied.  Their next step was to send letters to retailers warning them against selling generic equivalents of FOLTX.  The letters to the retailers not name Breckenridge or threaten a lawsuit, but did include a PamLab brochure.

Breckenridge then sued Metabolite and PamLab in Florida for declaratory judgment of non-infringement and for various torts based on Florida law. 

Metabolite was dismissed from the suit for lack of personal jurisdiction, and summary judgment was granted to PamLab because Metabolite, as patent holder, was an indispensable party.

On appeal, the CAFC agreed with the lower court that Federal Circuit law should be applied to determine whether personal jurisdiction would comport with due process — because even the non-patent issues were “intimately linked to patent law.” 

The panel summarized its licensor due process case law:

In sum, our case law has held as follows: where a defendant has sent cease and desist letters into a forum state that primarily involve a legal dispute unrelated to the patent at issue, such as an injunction obtained for misappropriation of trade secrets, the exercise of personal jurisdiction is improper. Silent Drive, 326 F.3d at 1202. Likewise, a defendant may not be subjected to personal jurisdiction if its only additional activities in the forum state involve unsuccessful attempts to license the patent there. Hildebrand, 279 F.3d at 1356. The same is true where the defendant has successfully licensed the patent in the forum state, even to multiple non-exclusive licensees, but does not, for example, exercise control over the licensees’ sales activities and, instead, has no dealings with those licensees beyond the receipt of royalty income. Red Wing Shoe, 148 F.3d at 1357-58.

In contrast, the defendant is subject to personal jurisdiction in the forum state by virtue of its relationship with its exclusive forum state licensee if the license agreement, for example, requires the defendant-licensor, and grants the licensee the right, to litigate infringement claims. Akro, 45 F.3d at 1546. Finally, the defendant will also be subject to personal jurisdiction in the forum state if the exclusive licensee (or licensee equivalent) with which it has established a relationship is not headquartered in the forum state, but nonetheless conducts business there. Genetic Implant, 123 F.3d at 1457-59.

Thus, the crux of the due process inquiry should focus first on whether the defendant has had contact with parties in the forum state beyond the sending of cease and desist letters or mere attempts to license the patent at issue there. Where a defendant-licensor has a relationship with an exclusive licensee headquartered or doing business in the forum state, the inquiry requires close examination of the license agreement. In particular, our case law requires that the license agreement contemplate a relationship beyond royalty or cross-licensing payment, such as granting both parties the right to litigate infringement cases or granting the licensor the right to exercise control over the licensee’s sales or marketing activities.

Here, the CAFC found that the licensing relationship between Metabolite and PamLab, that PamLab’s sales activities in Florida create are sufficient to give the court jurisdiction over Metabolite.

As such, we hold that, through its relationship with PamLab, which sells products in Florida, Metabolite has purposefully availed itself to the privilege of conducting activities within Florida.

Reversed, vacated, and remanded

Notes:

  • Although apparently a different patent, the patent at suit here is related to Metabolite’s method for diagnosing hyperhomocysteinemia.  The validity of that patent is currently being considered by the U.S. Supreme Court in the case of LabCorp v. Metabolite.

Amazon avoids infringement of on-demand book printing patent

Patent, ,

AIPLATalk182On Demand Machine v. Ingram and Amazon.com (Fed. Cir. 2006, 05–1074).

The district court found Ingram and Amazon.com liable for infringement of On Demand’s patented on-demand book printing system.  The defendants appealed on claim construction.

The CAFC disagreed with the lower court on many points of claim construction.  Interestingly, for the second time in as many weeks, an appellate panel found that the preamble of a claim was limiting.  Here the preamble was written as follows:

8. A method of high speed manufacture of a single copy of a book comprising . . .

According to the court, high speed manufacture of a single copy is “fundamental” to the invention because “the specification highlights that the customer may have a printed and bound copy within “three to five minutes.”  Here, the defendants can avoid infringement because the customer must wait a week to get their copy of the book.

Notes:

. . . From a Reader:

This CAFC decision should be of considerable interest to the book publishing, printing and distributing industries for several reasons.

First, this is a decision against a “print on demand” book printing patent of general industry interest, as evidenced by a pending SECOND adverse reexamination against it. This second reexamination is not even mentioned in this decision, only the first one is. Yet some of this Court’s comments about prior art, etc. may become relevant in this pending second reexamination?

On another matter, of general patent litigation interest, the Court says: “The court’s award of a royalty-bearing license during appeal and refusal to issue an immediate injunction are reviewed on the standard of abuse of discretion.” [emphasis added]

Later on, in its Conclusion, the Court merely adds: “The cross-appeal relates to the district court’s denial of an immediate injunction upon entry of the district court’s judgment, and the court’s setting of a royalty for continuing operations during appeal. That remedy is within the district court’s discretion. However, in view of our holding of non-infringement, the cross-appeal is moot, and is dismissed.”

There is no mention of the Sup. Ct. taking of eBay v. MercExchange for decision, in which even the Solicitor’s brief criticizes the CAFC for not spelling out the statutory test for granting injunctions. Yet they did it again! – the above is ALL this Panel said on this subject. I.e., even in this latest case, the Court does not cite or discuss the statute, or even the standards for stays of injunction during an appeal. Note that this panel did not approve a stay of an injunction pendant lite here, it merely held this issue to be MOOT, hence the above is mere DICTA.

Finally, this Court’s specific non-infringement distinctions should be cautionary for specification and claim drafters to avoid inadvertent or unintended claim scope limitations.

271(d)(5) Defines A Patent Misuse Safeharbor, But Does Not Define Misuse Itself

Patent, Patent Cases 2006

PhilipsPatentU.S. Philips v. Princo (Fed. Cir. 2006) (Non-Precedential).

In a non-precedential opinion, the CAFC noted that the traditional defense to patent misuse was narrowed when Congress enacted 35 U.S.C. 271(d)(5).  Under that statute, it is not misuse to “condition[] the license of any rights to the patent . . . on the acquisition of a license to rights in another patent or purchase of a separate product, unless, in view of the circumstances, the patent owner has market power in the relevant market for the patent or patented product on which the license or sale is conditioned.” 

According to the CAFC, section 5 provides “a safe harbor for certain conduct, not a comprehensive definition of patent misuse.” (Citing the recent Supreme Court case of Illinois Tool Works).  Remanded for a new determination of misuse.

 

Supreme Court on the March

Patent, Patent Cases 2006, , ,

The second half of March, 2006 is a special period for patent law. The Supreme Court will hear oral arguments in two important patent law cases, and may decide petitions for writ of certiorari in a couple others.

On Tuesday, March 21, the Supreme Court will hear arguments in LabCorp v. Metabolite (04–607).  The point at issue hear involves the scope of patentable subject matter.  Specifically, the question briefed is whether a patent can validly include a step of ‘correlating a test result’ that arguably monopolizes a basic scientific relationship used in medical treatment ‘such that any doctor necessarily infringes the patent merely by thinking about the relationship after looking at a test result.’   The Court could also use this case to cut-off patenting of many business-method type inventions. [Review of the LabCorp briefs]. With that in mind, the PTO has pushed-off implementation of any final rules regarding changes to examination of patentability under Section 101.  Respondent and several amici have argued that this case is not properly before the court and should simply be dismissed.  Full disclosure — I was part of the team that drafted the IPO’s brief arguing that the court should not use this case to further limit the scope of patentable subject matter.

The Metabolite case is certainly important.  However, it will only alter our thinking in fringe cases — such as business methods and methods of applying a scientific principle. On the other hand, eBay v. MercExchange (05–130) may have an effect on the value of every patent.

On March 29, the Court will hear the eBay case. It is expected that regulars, Carter Phillips (eBay), Seth Waxman (MercExchange), and Jeffrey Minear (Gov’t) will divide up the sixty-minute argument period.  This case involves the question of whether an injunction should issue once a patent is found valid and infringed.  EBay, the petitioner, has argued that the current standard, overly favors patent holders, and that the court should take a more equitable approach to determining whether to issue an injunction.  Further, when adjudging the equities, a non-practicing entity should have less of a likelihood of obtaining an injunction than would a market competitor. On the other side, MercExchange and the Government both argue for strong patent rights, although neither argue that the right to injunction should be absolute. 

Other pending cases include:

  • MedImmune v. Genentech (Whether a licensee in good standing can challenge a patent’s validity)(cert granted; petitioner briefs due soon);
  • FTC v. Schering Plough (Whether reverse settlement payment from patentee to generic can constitute an antitrust violation)(cert pending; government’s position requested)(DDC predicts cert);
  • KSR v. Teleflex (Whether references can be combined without explicit suggestion)(cert pending; government’s position requested);
  • SmithKline v. Apotex (When appreciation of the invention is required for anticipation)(cert pending; government’s position requested);
  • Microsoft v. AT&T (271(f) issue involving export of software, and whether that constitutes a “component”)(cert in briefing stage);
  • Nystrom v. Trex & Izumi v. Philips (claim construction issues)(cert in briefing stage)(Izumi brief; Philips response; amicus; Izumi reply).

Hal Wegner has been closely following these cases in his popular ‘top ten’ list.

Ebay v. MercExchange: The Law of Patent Injunctions

Patent, Patent Cases 2006,

eBay v. MercExchange (on writ of Certiorari 2006).

Later this month, the Supreme Court will hear this case to determine when a patentee should have a right to stop an infringer from making or selling unlicensed products once the patent has been found valid and infringed.  Because this issue is so fundamentally important to patent law, eBay v. MercExchange will likely be the most important patent case for the past decade.

As it stands, the Federal Circuit has a “usual rule” that once a plaintiff shows that a defendant infringes a valid patent, an injunction should issue.  According to the appellate court, the usual rule should be followed “absent special circumstances.”

In this case, a jury found that eBay infringed MercExchange’s patent, but the court refused to issue an injunction. Stating the “usual rule,” the Federal Circuit reversed, finding that an injunction should issue.  Now, Supreme Court has agreed to hear the case and determine the proper standards for issuing an injunction.

In January, eBay and its supports filed their briefs asking the court to overturn the Federal Circuit’s usual rule.  Respondent’s brief was due Friday, March 10, 2006. The following is a short review of the briefs in-hand.

Respondent MercExchange’s Brief: MercExchange’s brief is one of the best that I have ever read. In a twelve-page fact section, MercExchange tells its story and leaves little doubt that it will likely win its case, regardless of the rule eventually created by the high court. 

On the legal issues, MercExchange argues that the CAFC’s “usual rule” has been mischaracterized by eBay as an “automatic injunction” provision. Rather, the patent holder argues that courts have discretion to deny injunctions. The “usual rule,” they argue, flows naturally because it is only in “rare cases” that “any balance of hardships or the public interest favor the adjudged infringer.”  Rather, “in most cases those factors will strongly favor the patent holder.”

MercExchange also discusses the fundamental nature of a patent. 

The patent right’s fundamental aspect—its sum total—is “the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States.”

It is this right to exclude and not a ‘right to damages’ that defines the essence of a patentee’s rights.

MercExchange then walked through each of the district court’s stated factors that it used to originally deny the permanent injunction:

  • Willingness to license — According to MercExchange, it is “extraordinarily strange” to think that a patent holder’s willingness to license would be an indication that money damages may be adequate. (Land-owner example: you may allow your friends on your property, but may still want to exclude your enemies.)
  • Business method patents — According to MercExchange, Congress should address this issue.
  • Pending reexamination of MercExchange patents — According to MercExchange, this issue “is not properly before this court.”
  • Non-practice — MercExchange tried for years to practice the invention, and it does license its invention, which is as good as practicing the invention.  
  • Contempt proceedings — The threat of contempt proceedings against eBay for violating an injunction should not stop the court from issuing an injunction.
  • Failure to seek a preliminary injunction — MercExchange argues that this litigation strategy should not be held against it, and that requiring PI requests before granting permanent injunctions would further complicate the patent litigation procedure.

MercExchange’s only vacuous argument comes at the end where it essentially argues that all patentees are trolls to some extent because every patent includes at least some claim-scope that is not being practiced.

Government Brief: In the BlackBerry case, the Government sided with RIM, asking the district court to not issue an injunction.  Here, however, the DOJ has apparently flipped and now supports MercExchange. 

The Government argues that this case really involves a minor slip-up by the CAFC.  That court simply did not “adequately articulate” the principles regarding equitable relief. However, the Government argues that the court of appeals did reach the correct decision.

This position goes along with my own thoughts that the Supreme Court will hold that a court should weigh the pros and cons of an injunction before shutting down an infringer, but that there will still be a strong presumption that an injunction will grant — especially when the infringement is willful. 

* Query whether this brief provides any general indication of the Republican party stance regarding patent injunctions? [WSJ Blog][AuctionBytes][Patent Hawk]

Academics take sides: Two major groups of law professors have taken-sides in the debate.  First, a group of fifty-two patent-law professors, led by Mark Lemley of Stanford, filed a brief in support of eBay.  They argue that court’s should be given discretion to deny injunctive relief – even if such discretion is not used regularly or often.  The patent-law professors also make a distinction between a district court’s refusal to grant an injunction and a compulsory licensing scheme. (Patent-Law Professors Brief).

On March 10, a new brief, filed by nine professors of Law and Economics (L&E) takes the other side.  Professors Richard Epstein, Scott Kieff and Polk Wagner filed the brief in support of respondent, MercExchange.  They argue that the patent-law prof. brief “confuses the issues and muddies the waters in ways that weaken the structure of exclusive patent rights on which today’s elaborate system of licenses and other voluntary agreements rest.”

The L&E Professors take the position that the Federal Circuit’s jurisprudence is correct, and that “injunctions should generally issue except in those unusual cases in which good cause is shown for denying that form of relief.”  Where the L&E brief differs from the patent-law prof. brief is in the proposed route for determining when to refuse an injunction.  Specifically, the L&E brief argues that any exceptions to the general rule must fall within a specific category of exception, while the patent-law professors focus on more discretionary or ad hoc determinations.

PhRMA: PhRMA is an industry group that includes the major U.S. pharmaceutical research companies. The business models of those companies rely heavily on patent rights to protect innovations that may cost hundreds of millions to develop. PhRMA argues that the billions spent on R&D is predicated on assurances that the resulting IP rights will be strongly protectable.  This case threatens that long-held belief.

The industry group also notes that, if a hardship balance is considered, that the infringer’s hardship should not be considered when the hardship results from its obligation to stop infringing.

BIO: Like PhRMA, the members of the Biotechnology Industry Organization (BIO) argue that the right to injunctive relief is “vital in ensuring innovation” in their industry.  BIO quoted the 1824 case of Ex parte Wood for the proposition that our common law history unquestionably supports a strong right to injunctions against infringers.

The securing to inventors of an exclusive right to their inventions, was deemed of so much importance, as a means of promoting the progress of science and the useful arts, that the constitution has expressly delegated to Congress the power to secure such rights to them for a limited period. The inventor has, during this period, a property in his inventions; a property which is often of very great value, and of which the law intended to give him the absolute enjoyment and possession.

Ex parte Wood, 22 U.S. (9 Wheat.) 603, 608 (1824) (Story, J.) (emphasis added). Bio also favorably cites Hal Wegner’s article for the proposition that a compulsory license may well “run afoul” of the U.S. obligations under TRIPS.

GE, 3M, P&G Du Pont, and J&J: The group of industry giants support the presumptive right to an injunction that is “deeply rooted in the Constitution, the Patent Act, and 200 years of judicial precedent.”  This brief directly addresses eBay’s statutory hook of 35 U.S.C. 283, which only allows that courts “may grant injunctions in accordance with principles of equity.”  To quote Justice Marshall: “discretion is a motion, not to its inclination, but to its judgment; and its judgment is to be guided by sound legal principles.” I.e., a lower court’s discretion does not indicate that there should not be a strong presumption.

Rembrandt IP Management: Rembrandt is a “non-practicing entity” or NPE — meaning that it is a company that invests in patents but does not practice them. Rembrandt’s brief outlines the beneficial role that NPE’s can perform in the marketplace and in furtherance of the goals of the patent system. For instance:

  • Patent rights, like other property rights, benefit the community most when they are freely transferable.  Limiting the rights of certain patent holders practically limits the right to transfer.
  • Independent inventors and university researchers often have a niche in developing new ideas and new technology, but do not have the capital or the necessary tools to successfully bring products to market — inventors should not be penalized for not having a marketing wing.

Rembrandt also makes the point that without the threat of injunctions, “a well-funded infringer either would not take a license from an independent inventor at all, or would do so on a playing field that vastly favored the infringer.”

Intellectual Ventures: Intellectual Ventures has not been publicly termed a troll — perhaps because they have thus far been able to obtain licenses without litigation — but the secretive Washington State company does have a very high PPR (patent to product ratio).  Two dozen well known inventors signed-on to Intellectual Venture’s brief to send their message patent exclusivity promotes the progress of science and technology and promotes investment in research.  Perhaps more than any other groups, small entities and individual inventors rely on the potential for exclusivity to protect their work and to provide the incentive to research and develop new products.

Qualcomm: QualComm is an interesting story.  They used-to manufacture products, but now they primarily invent, design, and license.  They have proven that a big company can be competitive even when their only product is intellectual property.

Qualcomm and its co-amicus Tessera argue that eBay’s brief wrongly characterizes the patent marketplace. eBay and its supporters contentions of a “broken patent system” is not supported by the evidence.

This case itself shows that willful infringers are not cowed by the prospect of an injunction after an unsuccessful litigation defense and are not coerced into any settlement. To the contrary, large corporate infringement defendants often pursue a scorched earth defense strategy, particularly when they are sued by smaller entities.

Qualcomm also makes the important point that if eBay’s proposed changes were effectuated, they would result in a patent’s value depending upon the category of the owner — rather than on any intrinsic value of the claimed invention. “That world would be a distortion of the marketplace. The value of property should not depend on legal rules that are different for different owners.” 

ABA: The American Bar Association has sided with the patent holder MercExchange, arguing that the longstanding role of injunctions in patent cases should continue.  Interestingly, the ABA makes the novel argument that if we were to apply any new equitable considerations, those are “properly addressed” by Congress, not by the federal courts.

COPIES OF THE BRIEFS:

  • Party Briefs on the Merits

  • Amici Briefs on the Merits

    • Supporting MercExchange (Strong Injunctions)
  • Supporting Ebay (Weaker Injunctions)
  • Supporting Neither Party

  • Briefs for/against Certiorari:

  • Other

    •  * cite as Dennis Crouch, Review: EBay v. MercExchange Amici Briefs, Patently-O, March 13, 2006, available at https://patentlyo.com.