Tag Archives: Supreme Court

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

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

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

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

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

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

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

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

PTO Continuation and Claim Rules Temporarily Blocked by District Court

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On October 31, 2007, Judge Cacheris of the Eastern District of Virginia held court in the case of Tafas v. Dudas. In that case, several plaintiffs have joined together in an attempt to block implementation of a set of new patent prosecution rules proposed by the USPTO. The jist of those rules would be to effectively limit the number of claims filed in each patent application and to limit the number of ‘continuation’ applications that may stem from any original patent application.

At the conclusion of the hearing, the Court issued an oral decision temporarily enjoining the PTO from implementing the new rules that were set to become effective on November 1, 2007. John White, who attended the hearing, noted that the crowd clearly supported the plaintiffs and were quite relieved by the decision. Jill Browning of the Ashe firm also attended today’s hearing and provides the following analysis of Judge Cacheris’ hearing on the PTO’s Continuation and Claim Limitations:

With respect to the arguments presented, the Court was clearly well prepared on all the issues.  The attending members of the patent bar (of which there were many) were grateful to the Court for making its decision granting the injunction before the critical November 1 deadline and before the rules had a chance to become effective.   

The Court, at the outset, asked why GSK had delayed in filing its motion.  GSK indicated that the rules issued in August, 2007, were so different from the rules the public commented on in January, that, given the complexity of the rules, GSK’s filing of the motion was timely.  On this point, the USPTO later argued that the Final Rules were merely a “logical outgrowth” of the public comments provided and, thus, acceptable under the law.  GSK took issue with this point, but indicated that this topic would be more germane to the summary judgment briefing and did not need to be decided now. 

GSK began its argument by focusing on the public interest.  GSK argued that the public’s interest would best be served by not implementing the rules and, as support for this, pointed out that every amicus and declaration (and a letter from a Senator) filed by a third party had supported GSK’s position, as opposed to the USPTO’s. [Link] GSK pointed out that the public interest would best be served by maintaining the status quo, as opposed to implementing rules that would require applicants (and specifically GSK) to make substantive choices and decisions regarding their patent portfolios that could never be “undone.”  One particularly persuasive point GSK made during argument wsa that the “contract” between the applicant and the government (i.e., the applicant discloses its trade secret in return for patent protection) was broken by the USPTO’s enactment of the rules.  GSK pointed out that the “quid” of submitting the applications was already accomplished, and now the USPTO wanted to change the “quo.” 

In response, the USPTO argued that the USPTO was not deaf to the public outcry – but that the outcry of “change is bad” is not enough to outweigh an agency’s need to conduct its business in a way that alleviates an over burdened system.  In fact, at one point the USPTO, in a somewhat contradictory argument, noted that it was not enacting a “mechanical” rule eliminating additional continuations. Rather, the rules were simply directed at a way to relieve an overburdened system.  The USPTO stated that the New Rules would increase efficiency and decrease backlog.

GSK rebutted the USPTO’s argument that a delay would cause irreparable harm (i.e., loss of money in changing to the new implementation) by pointing out that the money was already spent, and delaying the implementation of the rules would not cause the USPTO to lose additional money.  On rebuttal, the USPTO indicated that the government would have to expend additional money re-training the examiners, as they could not be expected to maintain their understanding of such complicated and detailed rules for any extended period of time.

With respect to the merits of the case, the Court specifically asked each party whether the USPTO was acting in an arbitrary and capricious manner.  While GSK indicated that they did not need to address this question until summary judgment briefing, it believed that the USPTO was so acting, as evidenced by the Final Rules contradicting over 100 years of court precedent.  The USPTO, in response to the Court’s question, clung to the argument that the rules were merely procedural, and, thus, are well within the USPTO’s authority.  The USPTO also indicated that the 10,000 page record, which included a public comment period, supported the USPTO’s careful and extensive consideration of the issues and stands in stark contradiction to any allegation that the USPTO acted in an arbitrary and capricious manner.

The Court also asked each party what makes the New Rules “substantive” vs. “procedural.”  GSK argued that the rules were substantive primarily because the rules represent a break with over 100 years of substantive patent practice (focusing primarily on the ability to file unlimited continuations, excepting very narrow prosecution laches situations that should be applied on a very limited case-by-case basis).  The USPTO responded by arguing that the Final Rules were procedural because they do not affect the substantive rights of applicants to file, and do not even limit the number of continuations that an applicant can file – the applicant, to file additional applications (i.e., more than the 2 + 1) need only file a petition, which will be decided on a case-by-case basis.

GSK argued that the effect of the Final Rules was, in fact retroactive because it impaired the rights of a party, relying on Supreme Court precedent.  The USPTO indicated that Final Rules were not retroactive, merely because they “upset expectations” and that there is no property right in a patent application or in any particular procedure adopted by the USPTO.   

While, as the USPTO pointed out, an injunction is an extraordinary measure, GSK argued out that agencies are enjoined “all the time” when they promulgate rules that are challenged as being beyond the agencies’ authority.  Apparently, the Court agreed with GSK.  The reasoning for Judge Cacheris’ decision will be found in an opinion that he will issue before close of business today.

1.  When we can expect a final decision on the merits:  The summary judgment briefing schedule that the USPTO had agreed upon with Tafas appears to no longer be in effect for several reasons.  First, the USPTO claims that the expedited briefing schedule was agreed to based on Tafas’ agreement not to seek an injunction.  The USPTO indicated that Tafas reneged on the agreement and joined the motion for a preliminary injunction or TRO and, thus, this alone was grounds to vacate the government’s agreement.  Second, even if the court determined that Mr. Tafas’ actions did not repudiate the agreement, given the additional amicus briefs, and joining GSK as a party, the USPTO requires additional time to adequately address the briefs.  Further, the USPTO pointed out that, because the injunction was granted, plaintiff’s arguments for a speedy hearing on the summary judgment motion are less pertinent.  The Court instructed the parties to attempt to agree on a briefing schedule.  Hopefully, the briefing schedule will be presented as an order so that we will be able to determine when it will be heard, as this will determine when ultimate resolution of the case.

Of course, the preliminary injunction is not a decision on the merits of the rules — it is only preliminary relief. A full decision will likely be delayed until at least early January.  The PTO may still choose to appeal.

In other prosecution news… New IDS rules are expected to be published soon.

Supreme Court Study: Conservatives Support IP Rights; Liberals Do Not ?

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The politics of patent law is somewhat confusing. Those with the most at stake — innovator pharmaceutical companies — lean heavily toward a Republican party affiliation. Along that line, it is Democrats — with the support of California technology companies — who are pushing through Congressional patent reform measures that would weaken the strength of patent rights.  On the other hand, the current US Patent Office Republican administration has taken major steps to tighten the patent prosecution rules of practice.  These rule changes are most vehemently opposed by the innovator pharmaceutical companies and supported by many west coast technology companies.

The judiciary has also been thought to be a mixed bag — without any identifiable liberal-conservative ideologic divide.  In a new paper, DePaul Professor Matthew Sag and his colleagues from Northwestern (Jacobi & Sytch) prove that presumption wrong — at least for Supreme Court decisions. They find that throughout the past several decades, liberal Supreme Court justices tend to rule Against the IP Owner (XIPO) significantly more often than their conservative counterparts.  In other words — conservatives tend to support IP rights while liberals tend to deny those rights. The figure below, excerpted with permission from the paper, shows the trend based on Martin-Quinn scores of judicial ideology. Interestingly, the effect holds across all the various areas of IP law.

PatentLawPic075

Notes:

McFarling Petitions Supreme Court to Hear RoundUp Ready Patent Case

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

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

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

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

Mark Lemley (Stanford) is McFarling’s attorney.

Notes:

Biaxin Litigation: Sandoz’ Motion for Stay Pending Appeal Denied by District Court

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Abbott Labs v. Sandoz (N.D. Ill. 2007) (05 C 5373).

Abbott and Sandoz are in a tussle over Abbott’s patented clarithromycin antibiotic (BIAXIN). Abbott sued Sandoz and was granted a preliminary injunction in April 2007. Sandoz immediately requested a stay of the preliminary injunction pending appeal to the Federal Circuit. 

Under FRCP 62(c), a district court “in its discretion” may suspend or modify a preliminary injunction pending resolution of an interlocutory appeal.  In Hilton v. Braunskill (non-patent), the Supreme Court discussed the four-factors used to determine whether to stay pending appeal:

  1. Movant’s strong showing of potential success on appeal;
  2. Movant’s potential irreparable injury if stay is denied;
  3. Potential injury to patentee if stay is granted; and
  4. The public interest.

Here, potential success on appeal must refer to success in appealing the preliminary injunction — a much easier showing than success on the merits of the case as a whole. And the party’s “strong showing” of potential success does not need to reach even a 50% chance of winning on appeal — If the movant’s chances on appeal were greater than 50% then no PI should have issued in the first place.

Based on KSR, Sandoz argued a strong likelihood that the patent would be found obvious.  The district court, however, disagreed, finding that none of the prior art disclosed a claim limitation relating to PK levels.

There was no indication that either prior art disclosed the specific PK limitations of claim 1 and 4, and thus, there was no indication that the prior art would motivate a person of ordinary skill in the art to combine their teachings to arrive at the ‘718 patented invention. After reading the Supreme Court’s KSR opinion, this Court is left with the understanding that the need to demonstrate the presence of all claim limitations in the prior art (when the legal theory is based upon obviousness due to the combination of prior art teachings) has not been obviated.

Motion to stay denied. The PI will thus stay in force unless released by the CAFC on appeal.

  • The CAFC has already adjudged two PI cases regarding the patents-in-suit — affirming a PI against ANDRX and vacating a PI against Teva.
  • Cases Discussing Stay Pending Appeal:
  • Hilton v. Braunskill, 481 U.S. 770 (1987);
  • Hinrichs v. Bosma, 440 F.3d 393 (7th Cir. 2006).

Patent Exhaustion at the Supreme Court

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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.”).
  • Arizona Cartridge Remanufacturers Association Inc. v Lexmark International Inc, 421 F.3d 981 (9th Cir. 2005)
  • United States v. Univis Lens Co., 316 U.S. 241 (1942)

Supreme Court: Pharmaceutical Reverse Payments May be Considered by Supreme Court

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In an order today, the Supreme Court asked the US Solicitor General for the Gov’ts views on Joblove v. Barr Labs.  This case, also known as Tamoxifen Citrate Antitrust Litigation, questions the antitrust viability of reverse-payment settlements. 

Pharmaceutical patent owners and generic makers have been accused of cooperating in a scheme to prop-up drug prices.  In a number of cases, generic manufacturers have received payments from patent owners as incentive to drop patent challenges. So far the courts have OK’d the agreements, but the Government is pushing its case for enforcement of the Antitrust laws.

Over the past few years, the FTC & DOJ have been at-odds on whether this business practice represents a problem.

In 2006, FTC v. Schering-Plough, a similar case was presented to the Supreme Court. There, the DOJ filed a brief indicating its disagreement with the FTC and arguing that the high court should not hear the case. In its brief, the DOJ indicated that the Tamoxifen litigation (this case) would be a better avenue for the Supreme Court’s focus.  After hearring the DOJ’s argument, the Supreme Court denied cert in Schering-Plough.

In re Nuijten: Patentable Subject Matter, Textualism and the Supreme Court

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DuffyBy Professor John F. Duffy, George Washington University

[PDF Version of this Post] In re Nuijten, which is being argued to the Federal Circuit today, presents the important issue of whether a new type of artificially constructed signal may be patented.  The Patent and Trademark Office opposes patentability on the grounds that, as a matter of textual interpretation, signals do not fall within any one of the four categories of patentable subject matter – “process, machine, manufacture, or composition of matter” – identified in section 101 of the Patent Act.  PTO Br. at 12 (quoting 35 U.S.C. § 101).  Though Nuijten raises important issues concerning the scope of patentable subject matter under U.S. law (and that’s reason enough for most patent practitioners and scholars to care about its outcome), the case is also about much more.  It is about the fundamental approach to interpreting the Patent Act and the effect of the Supreme Court’s recent interest in patent cases.  To appreciate those larger issues, we must begin with a basic understanding of the facts at issue.

PatentlyO2006044Modern signals (e.g., for carrying audio, video or data) may be constructed to contain embedded “supplemental data” or “watermarks,” which typically contain information such as the source or copyright status of the underlying information being transmitted.  The addition of such watermarks, which is old in the art, can distort the underlying signal.  Nuijten invented a new way to add watermarks that results in less distortion.  Nuijten filed a patent application with claims directed to (1) the new process for adding watermarks, (2) storage media containing signals encoded by the new process, and (3) the signals themselves.  The PTO has allowed claims for the process and for the storage media containing the signals, but not for the signals themselves.  The PTO does not disputed that the signals sought to be patented are demonstrably new and nonobvious.  The agency’s sole objection rest on section 101 of the Patent Act. 

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Voda v. Cordis: Plaintiff May Not Assert Foreign Patents in US Courts

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VodaCatheter_smallVoda v. Cordis (Fed. Cir. 2007).

Jan Voda, an Oklahoma medical doctor sued Cordis for infringement of his patent on an interventional cardiology catheter. Voda had obtained patents both in the US and abroad. Not wanting to waste time and money on multiple suits, Voda asked the US court to also determine his claims of foreign infringement based on his patents in the UK, Canada, France, and Germany.  The US court agreed, but Cordis appealed — arguing that the district court improperly extended its jurisdiction.

In a 2–1 decision, the Federal Circuit (Gajarsa) has held that the district court cannot exercise supplemental jurisdiction over Voda’s foreign patent claims.  Judge Newman dissents.

Supplemental Jurisdiction: Federal courts are designed to hear federal law. But, every day they exercise their power to decide issues that arise under the law of other jurisdictions. Usually the other jurisdictions are US states and municipalities. But, the courts are also regular interpreters of non-US law as well.  Non-Federal questions arise based on either “diversity jurisdiction” or “supplemental jurisdiction.”  Supplemental jurisdiction is spelled-out in 28 USC 1367:

[after establishing] original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution.

In many cases, supplemental jurisdiction has been found to extend to include foreign law claims. However, the “so related” portion of the statute has been interpreted to require that the supplemental claims arise from a “common nucleus of operative fact” and that the claims would “ordinarily be expected to [all be tried] in one judicial proceeding.”  Here, the CAFC did not determine whether supplemental jurisdiction exists because it found that the district court had abused its discretion (see below).

Discretion and Comity: Even if jurisdiction exists, its exercise is “within the discretion of the district court.”  The CAFC found that the district court abused its discretion by ignoring the Paris Convention, TRIPS and concepts of comity.

 Like the Paris Convention, nothing in the PCT or the Agreement on TRIPS contemplates or allows one jurisdiction to adjudicate patents of another. . . . Based on the international treaties that the United States has joined and ratified as the “supreme law of the land,” a district court’s exercise of supplemental jurisdiction could undermine the obligations of the United States under such treaties, which therefore constitute an exceptional circumstance to decline jurisdiction under § 1367(c)(4). Accordingly, we must scrutinize such an exercise with caution. . . .

The territorial limits of the rights granted by patents are similar to those conferred by land grants. A patent right is limited by the metes and bounds of the jurisdictional territory that granted the right to exclude. Therefore, a patent right to exclude only arises from the legal right granted and recognized by the sovereign within whose territory the right is located. It would be incongruent to allow the sovereign power of one to be infringed or limited by another sovereign’s extension of its jurisdiction. Therefore, while our Patent Act declares that “patents shall have the attributes of personal property,” 35 U.S.C. § 261, and not real property, the local action doctrine constitutes an informative doctrine counseling us that exercising supplemental jurisdiction over Voda’s foreign patent claims could prejudice the rights of the foreign governments.

. . . Because the purpose underlying comity is not furthered and potentially hindered in this case, adjudication of Voda’s foreign patent infringement claims should be left to the sovereigns that create the property rights in the first instance.

Judicial Economy: While the CAFC agreed with voda that “consolidated multinational patent adjudication could be more efficient,” the court worried that it would also cause additional problems of confusion and difficulty understanding and enforcing foreign actions.

Changing Circumstances: Finally, the court left the door open if “circumstances change.”

In addition, we emphasize that because the exercise of supplemental jurisdiction under § 1367(c) is an area of discretion, the district courts should examine these reasons along with others that are relevant in every case, especially if circumstances change, such as if the United States were to enter into a new international patent treaty or if events during litigation alter a district court’s conclusions regarding comity, judicial economy, convenience, or fairness.

Vacated and Remanded

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Microsoft v. AT&T: Transnational Patent Law At The Supreme Court

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Microsoft v. AT&T (Supreme Court 2006)

Transnational patent law is a hot topic, and one the Supreme Court cannot ignore. The issue de jour involves the question of unauthorized export of patented software.  AT&T holds the speech compression patent that is infringed by Microsoft Windows. (RE 32,580). Microsoft exports the software code from Redmond to various international locations.  Once abroad, the code is then copied and installed in computers that are then sold abroad.  As the invention is claimed, the code alone does not infringe. Rather, infringement would only occur once the code is combined with the computer hardware. 

Under traditional notions of patent law, Microsoft’s actions are not infringement because the code alone does not infringe the patent, and (for the purposes of this case) the code is not combined with the hardware within the U.S. 

Here, however, traditional notions of territoriality have been supplanted by statute.  Under 35 U.S.C. 271(f), supply of only a portion of a component of a patented invention from the U.S. can be infringement.

35 U.S.C. 271(f) prohibits the “suppl[y] . . . from the United States . . . [of] all or a substantial portion of the components of a patented invention . . . in such manner as to actively induce the combination of such components outside of the United States,” as well as the “suppl[y] . . . from the United States [of] any component of a patented invention that is especially made or especially adapted for use in the invention.” 

Microsoft, of course, wants to avoid infringing the U.S. patent for its activity abroad and gives two separate reasons why its activity of exporting software do not fall within the parameters of 271(f). (I) Software code is an intangible string of information not a “component” as required by the statute. (II) Because copies of the code were used to create the infringing software/hardware combination, no physical particle that Microsoft exported actually became part of the finished product.  According to Microsoft, this means that nothing in the infringing combination was actually supplied from the U.S. as required by the statute. I term these two arguments the tangibility requirement and the molecular conservation requirement.

Microsoft and its supporters have now filed their merits briefs to the Supreme Court, and my reading of their arguments is that there is strong support for molecular conservation, but only weak support for tangibility. The Bush Administration supports this distinction in its brief filed jointly by the DOJ and PTO. 

On tangibility, the Government argues that software can certainly be a component, and that the statute is not limited to “only tangible components” as Microsoft suggests. Although not cited by the Government, Section 271(c) provides a statutorily distinct way of limiting components.  In referring to infringement through importation, that clause identifies only components of certain types of inventions such as machines and compositions.

On molecular conservation, the Government correctly notes that the statute requires that the exported components be the same components that are combined in the infringing manner. “Conduct that merely induces the combination of foreign-made components does not violate Section 271(f).” The statute, according to the Gov’t, leaves foreign manufacturers “free to manufacture and assemble copies of the identical components overseas” so long as none of the components actually assembled were made within the US.  Applying their argument to this case, we know that the software was copied and only those copies were combined with hardware in a would-be infringing manner.

A group of electronics companies led by Amazon filed a colorful brief that also supports the requirement of molecular conservation.

No matter where their unique arrangement was invented or dictated, if each molecule in the machine was supplied from outside the U.S., then no component was supplied from the U.S. In the present case, Microsoft did not supply even a single molecule of the foreign machines at issue.

Amazon also raises the slippery slope issue.  According to the brief, if Microsoft is liable here, then the Court would open the door to infringement for export of blueprints or a CAD/CAM design scheme.  That result, the brief argues, goes against congressional intent. As an aside, Amazon cited Wikipedia but did not include it in its list of “authorities.”  Although they do not cite it, the Pellegrini case holds that plans or instructions for a patented item cannot serve as components under 271(f).

In support of the molecular argument, a group of professors led by professors Lemley (Stanford) and Duffy (GWU), looked appropriately at the language of 271(f):

[A]s a matter of grammar that the phrase “such components” refers back to the components that have been “supplied” from United States. Thus, the plain language of the statute requires that inducing an extraterritorial combination constitutes an act of infringement if and only if the combined components are in fact the same components that were “supplied in or from” the United States.

For the professors, supplying exact copies does not meet the requirement. Most of the briefs come-up with some hypothetical metaphor to explain their situation — a guy memorizing some code and flying on an airplane, a hard-copy print out of some code that runs a fuel-injection system, CAD/CAM instructions, blueprints, etc.  The idea apparently is that if we allow copies of software to be considered components, then these situations necessarily also provide for infringement actions.  More accurately, however, they are just poor hypotheticals.

Software as Patentable Subject Matter: The anti-patent activist group SFLC led by Dan Ravicher and Eben Moglen also filed a brief that may be the dark-horse of this debate.  Their brief asks the Court to take a fresh look at the patentability of software.

Software can not be a “component[] of a patented invention” under 35 U.S.C. § 271(f) because software is not patentable subject matter under 35 U.S.C. § 101. As such, the Federal Circuit’s holding to the contrary in this case is erroneous and should be reversed.

It would be odd for the Court to decide the 101 issue in this case after dismissing LabCorp earlier this year.  However, I expect at least one concurring opinion supporting the ideas in this brief.

Impact on Software Industry: If Microsoft loses here, it will at least have a clear avenue to avoid future infringement. Unfortunately for US business, that avenue is to move all software development activities abroad so that components are never exported. This harmful effect was recognized and discussed in SIIA’s brief. SIIA is an industry group of software & technology companies who want to continue to design products in the US, but manufacture those products abroad. This argument is punctuated by BSA’s questionable hyperbole: “The purpose of patent protection is to encourage domestic innovation, not to drive it overseas.”

Impact in Biotech: Although not yet a viable industry, this could have a potentially large impact on biotechnology patent issues.  Like software, DNA code (or other biologics) could be shipped from the U.S. to be copied abroad and incorporated into an organism in an infringing manner.  Even more abstract, the export may merely involve transmitting a sequence listing that would be used to reproduce the sequence abroad.  Any decision on software should consider the potential impact on these areas as well.

Methods: What Professor Wegner has called the “Bizarre Twist” of this case involves the CAFC’s notion of export of components of method claims. In Union Carbide v. Shell, the court found that methods could indeed have components, and those included items used in the method (such as a catalyst).  Thus, in that case, the defendant could be held liable for exporting a stock catalyst if it intended to use the ingredient in a would-be infringing manner. Shell settled its case with Union Carbide, but has filed an amicus brief in this case, arguing that the Federal Circuit “seriously erred” by declaring that “every form of invention eligible for patenting falls within the protection of section 271(f).” 

Statutory Construction Excludes Methods?: Shell compares the use of the term “component” in 271(f) its use in 271(c) — the section addressing importation.  In 271(c), Congress explicitly limited components to “component[s] of a patented machine, manufacture, combination, or composition,” but also included a provision excluding importation of materials used in a patented process.  Shell’s argument: because 271(f) does not include the provision discussing materials used in a patented process, it cannot cover processes.  Of course, the unstated counter-argument to shell is that components discussed in 271(c) are specifically limited to components of machines, while 271(f) components are not so limited — indicating that “component” in 271(f) should receive a broader interpretation.

International Law: All of the transnational patent issues have an impact on international law issues. FICPI, a Swiss-based organization of patent folks filed its brief asking the the U.S. to keep its patents territorial and avoid stomping on the toes of others (as “young nations” are bound to do). FICPI’s implication that the Supreme Court is bound by the Paris Convention is plainly wrong.  The Paris Convention is not U.S. law. However, their point is well-taken, if 271(f) covers software, it thwarts the efforts of other countries to eliminate software patents.

Documents:

  • On the Merits
  • On Petition for Certiorari

    • Important recent 271(f) cases:

    • NTP v. Research in Motion, (271(f) “component” would rarely if ever apply to method claims).
    • AT&T v. Microsoft, 414 F.3d 1366 (Fed. Cir. 2005) (271(f) “component” applies to method claims and software being sold abroad);
    • Union Carbide v. Shell Oil (Fed. Cir. 2005) (271(f) “component” applies to method claims).
    • Eolas v. Microsoft, 399 F.3d 1325 (Fed. Cir. 2005) (271(f) “component” applies to method claims and software);
    • Pellegrini v. Analog Devices, 375 F.3d 1113 (Fed. Cir. 2004) (271(f) “component” does not cover export of plans/instructions of patented item to be manufactured abroad);
    • Bayer v. Housey Pharms, 340 F.3d 1367 (Fed. Cir. 2003) (271(g) “component” does not apply to importation of ‘intangible information’).

    Notes:

    • I will be updating this page as more briefs are filed.
    • I will be talking about cross-border liability at Santa Clara University’s 25th Annual Computer & High Technology Law Journal Symposium on January 26 in San Jose. Information here.

    Appeals Court orders Eolas v. Microsoft Patent Case to be Reassigned

    Patent, Patent Cases 2006,

    Eolas Eolas v. Microsoft (Fed. Cir. 2006).

    Eolas has been after Microsoft since 1999 hoping to collect on its five hundred million dollar patent infringement verdict.  After last year’s remand from the CAFC, Microsoft asked the Northern District of Illinois to reassign its case to another judge — a motion that was denied. Microsoft appealed.

    In its motion for reassignment, Microsoft did not assert bias or misconduct, but rather argued that under N.D.Ill. rules, cases on remand should be "automatic." (Local Rule 40.5). In denying the motion, the district court explained that the particular rule had become "mostly dormant."

    In its decision to reassign the case, the CAFC also relied upon the Seventh Circuit rule that cases must be reassigned on remand. 

    Although the 2005 CAFC decision in this case was largely in favor of the patentee Eolas, Microsoft will now have a new opportunity to present its defenses to an entirely new judge.

    Eolas case is now even stronger — with the recent issuance of a reexamination certificate of the Eolas ‘906 patent by the PTO. The reexamination provides a further presumption that the patent is valid over a number of additional pieces of prior art, including that submitted by W3C Director Tim Berners-Lee.

    Documents:

    The 271(f) export issue is likely to be taken-up by the Supreme Court in the parallel AT&T v. Microsoft case.

    eBay Casualty: E.D. Texas Court Denies Injunctive Relief to Halt Microsoft’s Infringing Activities

    Patent, Patent Cases 2006,

    Z4I’m writing a paper on this very topic, but history is happening faster than I can type . . .

    z4 Technologies, Inc. v. Microsoft (E.D.Texas 2006)

    z4 Tech appears to be the first post-eBay decision denying a permanent injunction after a patent has been valid and infringed. Here, the jury found that the patents were willfully infringed by Microsoft and that there was insufficient evidence to find the patents invalid. z4 then asked the Court to enjoin Microsoft from making, using, or selling its infringing product (Windows XP).

    The Court followed the “traditional four-factor test used by courts of equity.” to determine whether to issue an injunction:

    I. Irreparable Injury to Patentee: The patentee argued that infringement of a patent created a rebuttable presumption of irreparable harm to the patentee.  The district court dismissed this “creative” argument as lacking precedential foundation:

    z4’s arguments for the application of a presumption of irreparable harm are creative, but z4 cannot cite to any Supreme Court or Federal Circuit case that requires the application of a rebuttable presumption of irreparable harm with regard to a permanent injunction.

    In fact, the court cited the Supreme Court case of Amoco Production for the proposition that a presumption of irreparable harm in the context of an injunction is “contrary to traditional equitable principles.” 

    Because z4 does not create any products, the Court found that z4 the first factor weighed in favor of the willful infringer, Microsoft.

    In the absence of a permanent injunction against Microsoft, z4 will not suffer lost profits, the loss of brand name recognition or the loss of market share because of Microsoft’s continued sale of the infringing products. These are the type of injuries that are often incalculable and irreparable. The only entity z4 is possibly prevented from marketing, selling or licensing its technology to absent an injunction is Microsoft. As . . . z4 can be compensated for any harm it suffers in the way of future infringement at the hands of Microsoft by calculating a reasonable royalty for Microsoft’s continued use of the product activation technology. Accordingly, z4 has not demonstrated that it will suffer irreparable harm absent a permanent injunction.

    II. Remedies Available at Law (Is Money Sufficient?): Here, the court cited Kennedy’s concurring opinion from eBay:

    Justice Kennedy specifically mentioned the situation where a “patented invention is but a small component of the product the companies seek to produce” and states that in such a situation, “legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest.” . . .

    Here, product activation is a very small component of the Microsoft Windows and Office software products that the jury found to infringe z4’s patents. The infringing product activation component of the software is in no way related to the core functionality for which the software is purchased by consumers. Accordingly, Justice Kennedy’s comments support the conclusion that monetary damages would be sufficient to compensate z4 for any future infringement by Microsoft.

    In addition, Microsoft has promised that its new version of Windows (2007) will phase out all the infringing components.  Thus, any ongoing royalty would only last for a couple of years.  “For the reasons stated above, z4 has not demonstrated that monetary damages are insufficient to compensate it for any future infringement by Microsoft.”

    III. Balance of Hardships: Microsoft argued that it would be really hard to redesign even a small component of Microsoft office.  From what I have heard about the complicated code noodle, that assertion must be true. Thus, the court found that the balance of the hardships weigh in favor of Microsoft.

    IV. Public Interest: Microsoft office is really popular, and “it is likely that any minor disruption to the distribution of the products in question could occur and would have an effect on the public due to the public’s undisputed and enormous reliance on these products. . . . Although these negative effects are somewhat speculative, such potential negative effects on the public weigh, even if only slightly, against granting an injunction.”

    Commentary: As I predicted earlier, one way to avoid an injunction is to be a very successful infringer.  I would have suspected that Microsoft’s willfulness would have weighed in z4’s favor, but the court did not even mention willfulness in its analysis of the equitable relief factors. 

    In a forthcoming paper code-named Injunction Denied, I address the issue of injunctive and monetary relief in patent cases.  In particular, I focus on the situation where equities favor the defendant, and ask the question what monetary remedy a court should then impose? My answer may surprise you. . .

    (more…)

    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:

    Supreme Court Moves Toward Hearing AT&T v. Microsoft Software Export Case

    Patent, Patent Cases 2006

    When can a U.S. patent be used to recover damages for infringement occurring abroad? The answer is actually quite often.  Over the past couple of years, plaintiffs have recovered huge damages (or settlements) in U.S. courts for activities that at least partially occurred abroad.  In NTP v. RIM, RIM’s BlackBerry system was considered to be used “in the United States” because the e-mail exchange was being controlled by and for the beneficial use of U.S. customers.  In Eolas v. Microsoft and AT&T v. Microsoft, the Court of Appeals for the Federal Circuit (CAFC) agreed that the transmittal of computer code could create liability under 271(f) a “component” of a patented invention “supplied” from the U.S. In Shell v. Union Carbide the court further clarified that method claims could have components as well — in this case, the component was a compound used in the patented chemical process.  To now, each of these cases have stalled after the CAFC decision when the Supreme Court failed to accept them on petition for certiorari.  The lone remaining case is AT&T v. Microsoft.  In that case, the Supreme Court has asked the U.S. Solicitor General for the views of the U.S. Government before the Court makes its decision on certiorari.  As a historical note, the Supreme Court has not addressed the issue of extraterritorial infringement since the DeepSouth Packing case of 1972, which prompted Congress to pass Section 271(f).

    PatentlyO041

    AT&T v. Microsoft (on petition for certiorari).

    This issue is huge for Microsoft and for U.S. software developers. Microsoft develops much of its software in the U.S., and ships the code around the world.  In the Eolas case, of the half-billion dollar verdict, $330 million was premised on exported code.

    In the AT&T case, the CAFC essentially held that Microsoft’s act of shipping its code to a foreign office constitutes patent infringement and any consequential sales or licensing of the shipped code will create patent infringement damages.

    The software here involves enhancing the sound quality of synthesized speech while maintaining a high data compression.

    In its petition, Microsoft asks two questions:

    1) Whether digital software code – an intangible sequence of “1’s” and “0’s” – may be considered a “component[] of a patented invention” within the meaning of Section 271(f)(1); and, if so

    2) Whether copies of such a “component[]” made in a foreign country are “supplie[d] . . . from the United States.”

    The petition attempts to show that the CAFC has gone astray by interpreting the statute in a manner “appropriate to the technology at issue” rather than according to its “plain meaning and legislative history” as required by Supreme Court precedent.

    The petition also impliedly argues that software itself should not be patentable.  

    The decision below is premised on a commonly held misunderstanding of the nature, and thus the patentability, of software.

    Noted attorney Ted Olson and his able team (including Matthew McGill) are handling the appeal.

    AT&T’s Opposition

    AT&T quickly notes that Microsoft has already appealed this identical issue in the Eolas case, and lost there as well. In addition, AT&T discusses Microsoft’s highly public (but yet unsuccessful) lobbying for patent reform in Congress as evidence that this is an issue that has been considered and rejected by the lawmaking body. Of course, AT&T also argues that the lower court decision does nothing to “expand the extraterritorial reach of U.S. patent laws.

    Petitioner’s extraterritoriality argument is a red-herring.  Years before . . . the court defined the limits of section 271(f) in order to avoid “the appearance of ‘giving extraterritorial effect to United States patent protection.’”

    Waymark (looking only to activity within the U.S. when adjudging infringement).

    Amicus in Support of Petitioner by the Software & Information Industry Association (SIIA).

    The SIIA is a trade group with over 750 corporate members argued that the CAFC’s new rule upsets settled expectations.

    SIIA makes what I see as an important distinction that in Microsoft’s case, the code supplied from the U.S. is not actually incorporated into the infringing products.  Rather, the code shipped abroad, copied, and then the copies are installed in the foreign country.  They argue that the act was never intended to capture millions of infringing acts based on the supply of only a single component.

    Next Steps:

    The SG is expected to take several months to provide its input, and this case will not be heard until 4th Quarter 2006. It is currently too-late for parties to file amici briefs.  However, the SG will accept input from the public on this important issue.

    Documents:

    Links:

    • NTP v. Research in Motion, (271(f) “component” does not apply to method claims).
    • AT&T v. Microsoft, 414 F.3d 1366 (Fed. Cir. Jul. 13,2005) (271(f) “component” applies to method claims and software being sold abroad);
    • Eolas v. Microsoft, 399 F.3d 1325 (Fed. Cir. Mar. 2,2005) (271(f) “component” applies to method claims);
    • Pellegrini v. Analog Devices, 375 F.3d 1113 (Fed. Cir. 2004) (271(f) “component” does not cover export of plans/instructions of patented item to be manufactured abroad);
    • Bayer v. Housey Pharms, 340 F.3d 1367 (Fed. Cir. 2003) (271(g) “component” does not apply to importation of ‘intangible information’).

    Notes:

    ** 35 U.S.C. 271(f)

    (1) Whoever without authority supplies . . . from the United States . . . a substantial portion of the components of a patented invention . . . in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.

    (2) Whoever without authority supplies . . . from the United States any component of a patented invention that is especially made . . . for use in the invention and not a staple article . . . suitable for substantial noninfringing use. . . , knowing that such component is so made . . . and intending that such component will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.

    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.

    Supreme Court Eliminates Presumption of Market Power in Patent Antitrust Cases

    Patent, Patent Cases 2006

    IllinoisToolIllinois Tool Works v. Independent Ink (2006, 04-1329)

    By Israel Encinosa

    In an 8-0 decision (Justice Alito took no part), the United States Supreme Court has reversed the Federal Circuit’s decision in Illinois Tool Works, Inc. et al. v. Independent Ink, Inc., and expressly overruled some of its own prior rulings, holding that the mere fact that a tying product is patented does not support a presumption of market power.

    The Court characterized the question before it as “whether the presumption of market power in a patented product should survive as a matter of antitrust law despite its demise in patent law.” The Court noted that the presumption that a patent confers market power originally arose outside the antitrust context as part of the patent misuse doctrine, and migrated to antitrust law in International Salt Co. v. United States, 332 U.S. 392, and its progeny. The Court further noted that while Congress continually chipped away at the presumption, ultimately amending the Patent Code to eliminate the presumption in the patent misuse context, the Court’s antitrust jurisprudence, in contrast, continued to rely on it.

    Today’s decision marks a decisive shift in the Court’s antitrust jurisprudence as the Court clearly rejected the presumption of per se illegality of tying arrangements involving patented products. The Court ruled that "any conclusion that an arrangement is unlawful must be supported by proof of power in the relevant market rather than by a mere presumption thereof," and moreover, that "because a patent does not necessarily confer market power upon the patentee, in all cases involving a tying arrangement, the plaintiff must prove that the defendant has market power in the tying product."

    In addition to rejecting the per se rule, the Court also declined respondent’s invitation to "endorse a rebuttable presumption that patentees possess market power when they condition the purchase of the patented product on an agreement to buy unpatented goods exclusively from the patentee."

    NOTE: Israel Encinosa is an attorney at Kirkland & Ellis where he focuses his energy on antitrust law and commercial litigation. He graduated from the University of Chicago Law School.

    Supreme Court Asked To Determine Extraterritorial Scope of U.S. Patent Laws

    Patent, Patent Cases 2006

    Microsoft has given the Supreme Court its third opportunity in as many years to tackle the Federal Circuit’s controversial interpretation of 35 U.S.C. 271(f). That statute allows a U.S. patentee to collect damages for foreign sales of a patented invention based on the export of one or more of its components.  The statute has been extended to the export of software code (AT&T, Eolas) as well as to the export of elements used in a patented method (Union Carbide).

    In Microsoft v. AT&T, the software giant has asked the Court to answer:

    1. Whether digital software code . . . may be considered a “component[] of a patented invention” within the meaning of Section 271(f)(1); and
    2. Whether copies of such a component made in a foreign country are “supplie[d] . . . from the United States.”

    AIPLATalk149

    Here, Microsoft’s software code was generated in the U.S. and then shipped abroad where copies were generated.  AT&T claims (and courts have thus far agreed) that sales of those foreign copies infringe the U.S. patent and create liability.  If it stands, this case could have far-reaching effects in the fields of biotechnology (DNA/cell replication) as well as foreign piracy (shipping product from the U.S. to reverse engineer and copy in a foreign country).

    From a business perspective, this interpretation of the statute gives business executives another reason to send software jobs overseas.  If the component was not exported from the U.S., there will be no damages under 271(f).

    Important recent 271(f) cases:

    • NTP v. Research in Motion, (271(f) “component” would rarely if ever apply to method claims).
    • AT&T v. Microsoft, 414 F.3d 1366 (Fed. Cir. 2005) (271(f) “component” applies to method claims and software being sold abroad);
    • Eolas v. Microsoft, 399 F.3d 1325 (Fed. Cir. 2005) (271(f) “component” applies to method claims and software);
    • Pellegrini v. Analog Devices, 375 F.3d 1113 (Fed. Cir. 2004) (271(f) “component” does not cover export of plans/instructions of patented item to be manufactured abroad);
    • Bayer v. Housey Pharms, 340 F.3d 1367 (Fed. Cir. 2003) (271(g) “component” does not apply to importation of ‘intangible information’).

    Documents:

    Supreme Court to Determine Licensee’s Right to Sue for Declaratory Judgment of Invalidity or NonInfringement

    Patent, Patent Cases 2006,

    ChimericImmunoglobulinMedImmune v. Genentech* (Supreme Court 2006).

    The Supreme Court has granted certiorari to determine when a patent licensee in good standing can challenge the validity of a patent.  In two separate opinions, the CAFC dismissed MedImmune’s cases — holding that a licensee has no standing to sue for declaratory judgment because it is not under threat of being sued for patent infringement.

    This issue harks back to the 1969 Lear v. Adkins case that limited the ability of a licensee to sign-away its right to later challenge the validity of a licensed patent.  In Lear, the High Court found that the public’s interest in invalidating bad patents was strong enough to warrant a limit on the licensee’s ability to give up its future right to challenge validity. 

    The question presented is:

    Does Article III’s grant of jurisdiction of “all Cases . . . arising under . . . the Laws of the United States,” implemented in the “actual controversy” requirement of the Declaratory Judgment Act, 28 U.S.C. 2201(a), require a patent licensee to refuse to pay royalties and commit material breach of the license agreement before suing to declare the patent invalid, unenforceable or not infringed?

    * A second petition MedImmune v. Centocor is also pending before the Court with the parallel question of: 

    Does the “actual controversy” requirement of the Declaratory Judgment Act, 28 U.S.C. 2201(a) require a material breach of a license agreement by a licensee prior to suit for declaratory relief for patent infringement, invalidity, or unenforceability?

    Documents:

    Links:

    Supreme Court Denies Phillips v. AWH Petition for Certiorari

    Patent, Patent Cases 2006,

    Phillips v. AWH Corp. (Supreme Court).

    The Supreme Court has denied AWH’s bid for certiorari on the question of whether “all aspects of a district court’s patent claim construction may be reviewed de novo on appeal.”  That single rule of law has often been cited as the primary reason for the unusually high reversal rate of patent cases.

    Supreme Court: Failure to Renew Post-Trial Motion Eliminates Possibility of Appeal

    Patent, Patent Cases 2006,

    Unitherm Food Systems, Inc. v. Swift-Eckrich, Inc, —– U.S. —– (2006).

    By Joshua Rich

    The Supreme Court, in Unitherm Food Systems, Inc. v. Swift-Eckrich, Inc., continued its trend of requiring strict compliance with procedural litigation rules. The case arose out of Swift-Eckrich (which does business as ConAgra) sending out cease and desist letters that indicated that it intended to “aggressively protect all of [its] rights under” one of its patents. A recipient of the letter investigated the charge and determined that Unitherm, who was supplying the allegedly infringing process, had invented the patented process years before ConAgra had filed its patent application. Upon learning this, Unitherm sued ConAgra for a Walker Process antitrust violation, alleging that ConAgra had attempted to enforce a patent that was obtained through fraud on the Patent and Trademark Office.

    The Supreme Court’s decision arose out of ConAgra’s motion practice at trial. Before the case was submitted to the jury, ConAgra moved for a directed verdict under Rule 50 of the Federal Rules of Civil Procedure, alleging that the evidence was insufficient to support a jury verdict against it. The judge denied the motion and the jury returned a verdict against ConAgra. After the jury verdict, ConAgra then neither renewed its Rule 50 motion to seek judgment as a matter of law nor filed a motion for new trial based on insufficiency of the evidence under Rule 59. On appeal, the question arose whether ConAgra could raise sufficiency of the evidence in light of its failure to renew the Rule 50 motion. The Federal Circuit found that it could (and reversed the jury verdict); the Supreme Court found that it could not.

    Unquestionably, a district court cannot reverse a jury’s verdict in the absence of the renewal of a motion for directed verdict; the Supreme Court found that appellate courts similarly have no power to reverse the jury’s weighing of the evidence absent post-trial motions. Relying on three cases decided soon after World War II, the Court found that appellate courts do not have the power to apply the rules flexibly and consider the sufficiency of the evidence in the absence of a post-verdict motion. While some of the circuit courts had read some flexibility into Rule 50, the Court indicated that no flexibility was appropriate – without renewal of the Rule 50 motion, an appellate court cannot consider the sufficiency of the evidence.

    While not specific to IP cases, the Unitherm case is important for IP cases because it forces the hand of litigators in such cases. Often, given page limitations and circumstances of trial, parties in IP cases are forced to choose which arguments to present to the trial court and which to drop. Now, it is clear that any arguments dropped from post-verdict motions will be off limits before the appellate courts. As a result of the Court’s decision, any party that thinks that there may be some chance it will want to raise sufficiency of the evidence on appeal will have to reserve space in its briefing papers to raise the argument. Similarly, trial counsel must pay special attention in the swirl of events after trial, as any deficiency in the post-trial briefing could drastically narrow the matters the appellate court can consider.

    Note: Joshua Rich is a partner at MBHB LLP in Chicago where he litigates intellectual property cases. Mr. Rich has a background in biochemistry.  However, he has handled patent cases in a variety of technology areas as well as trademark, copyright, trade secret, and contract issues.