The Supreme Court has now granted certiorari in two enhanced fee award patent cases: Halo Electronics, Inc. v. Pulse Electronics, Inc., S.Ct. No. 14-1513 and Stryker Corp. v. Zimmer, Inc., No. 14-1520.
The court linked the two together and will hold one big oral arguments (one hour) focusing on whether the Federal Circuit’s rigid test limiting enhanced patent damages is appropriate — especially following the Supreme Court’s decision in Octane Fitness where the Supreme Court rejected a parallel rigid test in the fee-shifting situation.
Those familiar with treble-damages know that the Federal Circuit has created a complex and rigid test for determining whether such awards may be granted. The statute though is simple and only states that “the court may increase the damages up to three times the amount found or assessed.” 35 U.S.C. 284.
In this case, the Supreme Court is very likely to require flexibility – what is unclear is what level of flexibility will be allowed. For instance, will enhanced damages continue to be limited to willful infringement?
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Questions presented (both of these appear to be in close parallel):
Halo: Whether the Federal Circuit erred by applying a rigid, two-part test for enhancing patent infringement damages under 35 U.S.C. § 284, that is the same as the rigid, two-part test this Court rejected last term in Octane Fitness, LLC v. ICON Health & Fitness, Inc. for imposing attorney fees under the similarly-worded 35 U.S.C. § 285.
Stryker: Whether the Federal Circuit improperly abrogated the plain meaning of 35 U.S.C. § 284 by forbidding any award of enhanced damages unless there is a finding of willfulness under a rigid, two-part test, when this Court recently rejected an analogous framework imposed on 35 U.S.C. § 285, the statute providing for attorneys’ fee awards in exceptional cases.
As we sit here today, there are no pending patent cases before the Supreme Court where the court has granted certiorari. That said, there are a large number of pending petitions. These include Cuozzo & Pulse that I have previously discussed. WilmerHale has been covering these, but is a few months behind.
The following are a few recently filed petitions:
Teva Follow-On: FiveTech v. SouthCo: (1) Can the Federal Circuit limit the role of the intrinsic evidence in construing patent claims under the exacting “lexicography and disavowal” standard; (2) Does the “lexicography and disavowal” standard improperly circumscribe the objective standard of the person of ordinary skill in the art in construing claim terms.
Teva Follow-On: Chunghwa Picture Tubes v. Eidos: Whether a district court’s factual finding(s) underlying its construction of a patent claim term must be reviewed for clear error under Rule 52(a)(6) as this Court held in Teva, or is an exception created to clear error review where the appellate court finds the intrinsic record clear after a de novo review of that record, as the Federal Circuit held in this case.
Attorney Fees in Copyright:
Kirtsaeng v. John Wiley (Kirtsaeng II): What is the appropriate standard for awarding attorneys’ fees to a prevailing party under § 505 of the Copyright Act?
Omega v. Costco (Costco II): (1) Can Copyright attorney fees be based on a finding that petitioner engaged in copyright misuse when the issue of misuse was appealed but left undecided on appeal? (2) Can the pursuit of a claim of copyright infringement constitute “copyright misuse” when the allegedly infringing copy is a “pictorial, graphic, or sculptural work” that is reproduced in a “useful” article.
Inter Partes Review Challenges:
Automated Merchandising v. Michelle Lee: (1) Must the federal judiciary await the substantive conclusion of an agency proceeding before it can evaluate whether an express statutory limitation on that agency’s jurisdiction requires that agency to terminate its proceeding? (2) Did the Federal Circuit err in refusing to order the USPTO to terminate the subject inter partes reexaminations under 35 U.S.C. § 317(b)?
Luv N’ Care v. Munchkin: Did the Federal Circuit err by affirming a PTAB administrative judgment based on new issues raised sua sponte by the PTAB at the Final Hearing, thus depriving the patent owner of notice and a meaningful opportunity to respond?
ANDA Loophole Cases:
Mylan v. Apotex: (1) Whether Article III’s case or controversy requirement can be satisfied by a suit which seeks a judgment of non-infringement of a disclaimed patent. (2) Whether Congress can create Article III jurisdiction by imposing statutory consequences that turn on obtaining a judgment of non-infringement of a disclaimed patent.
Daiichi Sankyo v. Apotex: Whether an action seeking a declaration judgment of non-infringement presents a justiciable case or controversy under Article III of the Constitution where the patent at issue was previously disclaimed and thus cannot be enforced.
Design Patent Summary Judgment:Butler v. Balkamp: Is summary judgement proper in a District Court when a factual dispute exists in a Design Patent action and the District Court substitutes its own opinion for that of the ordinary observer?
Reasons to Combine and Obviousness:Arthrex v. KFX Medical: (1) Is the “reason to combine” inquiry a subsidiary question of fact, subject to deferential review on appeal, or a legal question for the court, and reviewed de novo. (2) Should the ultimate legal issue of obviousness be resolved by the court rather than submitted to the jury for resolution.
Cuozzo lost its petition for en banc rehearing in a 6-5 split of Federal Circuit judges. Now, the patentee has raised is challenge to the IPR process to the Supreme Court – asking two questions:
Whether the [Federal Circuit] erred in holding that, in IPR proceedings, the Board may construe claims in an issued patent according to their broadest reasonable interpretation rather than their plain and ordinary meaning.
Whether the [Federal Circuit] erred in holding that, even if the Board exceeds its statutory authority in instituting an IPR proceeding, the Board’s decision whether to institute an IPR proceeding is judicially unreviewable.
Answers to these questions will fundamentally alter the inter partes review system. The petition does a good job of walking through the importance of the case and then separately explaining their legal argument.
The Cuozzo petition was filed by a rising star in Supreme Court practice – Jeffrey Wall, who is partner at Sullivan & Cromwell. Wall was a clerk for Justice Thomas and was an Assistant to the Solicitor General for five years. He also has the distinguishing mark of being my law school classmate (as well as Prof. Rantanen).
In an interesting opinion, the Federal Circuit has rejected MPHJ’s plea to get into Federal Court. The State of Vermont sued the patent holder for violations of Vermont Consumer Protection Act (VCPA) stemming from MPHJ’s patent enforcement campaign. The letter campaign had three stages:
Letter from the shell company stating that “we have identified your company as one that appears to be using the patented [scanner-to-email] technology” suggesting that “you should enter into a license agreement with us at this time.”
Follow-up letter a few weeks later from the Farney Daniels firm stating that a prior-non response is considered “an admission of infringement” and implying that litigation would commence if the recipient did not enter into a license agreement.
A third follow up following the pattern of the second.
These actions prompted the Vermont Attorney General to sue under the VCPA – alleging unfair and deceptive trade practices based upon MPHJ’s “threating litigation even though litigation was unlikely, targeting small businesses, placing the burden on the recipient to do the investigation, using shell corporations to minimize liability; and stating in its letters that it would bring suit immediately absent a license, the licensing program was successful with many businesses taking part, and the average license was $1000/employee.” The state demanded a permanent injunction requiring that MPHJ comply with state law.
After VT filed its original complaint (but before it filed its amended complaint), the state enacted the “Vermont Bad Faith Assertions of Patent Infringement Act” (BFAPIA) that creates a new Vermont cause of action for “bad faith assertion of patent infringement” based upon factors such as “the contents of the demand letter, the extent of any pre-assertion investigation, demands for payment of a license fee in an unreasonably short time, and deceptive assertions of infringement.”
MPHJ alleges that the proposed injunction would force it to comply with BFAPIA, but that law is preempted by the US patent laws and – as such – that the case should be removed to Federal Court.
The Federal District Court denied MPHJ’s first removal request (based upon the first complaint) and second removal request (based upon the VT amended complaint). It is that second denial that was appealed and the Federal Circuit here has affirmed the denial – limiting the appeal question to the BFAPIA issue and finding that the VT injunction does not raise the BFAPIA enforcement issue – especially since Vermont stipulated during oral arguments that they were not seeking an injunction that would require compliance with that statute.
Federal Circuit Jurisdiction: The most interesting aspect of the decision is Judge O’Malley’s discussion of Federal Circuit jurisdiction post-AIA and post-Gunn.
The America Invents Act amended Title 28 to now grant Federal Circuit appellate jurisdiction “in any civil action arising under, or in any civil action in which a party has asserted a compulsory counterclaim arising under, any Act of Congress relating to patents.” 28 U.S.C. § 1295(a)(1). This change extends the Federal Circuit’s jurisdiction to include cases where the patent issues arise only in a compulsory counterclaim (formerly, the focus was only on the complaint). The new statute also added additional language that “no state court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents,” 28 U.S.C. § 1338(a), and a new removal statute indicating that “a civil action in which any party asserts a claim for relief arising under any Act of Congress relating to patents . . . may be removed to [federal] district court . . . .” 28 U.S.C. § 1454.
At the same time, in Gunn (2013) the Supreme Court contracted Federal Circuit jurisdiction to cases where (1) federal patent law creates the cause of action or (2) where, although the claim arises under state law, that a federal patent law issue is: (a) necessarily raised, (b) actually disputed, (c) substantial, and (d) capable of resolution in federal court without disrupting the federal-state balance approved by Congress. Gunn (interpreting pre-AIA law).
Here, MPHJ asserts that the Federal Circuit has jurisdiction over the appeal because its Counterclaim (No. 5) raises a patent law issue. In particular, MPHJ asked for “a declaratory judgment that the VCPA is invalid or preempted by the First, Fifth, and Fourteenth Amendments, the Supremacy and Patent Clauses, and Title 35 of the U.S. Code.”
Walking through this morass, the Federal Circuit first ruled that the counterclaim is a compulsory counterclaim because of its close factual and logical relationship with the main claim found in the complaint. The next question under Section 1295(a)(1) then, also answered affirmatively here, is whether the counterclaim “arises under” federal patent law. Although not a cause of action, the federal circuit found that the preemption defense is an important and necessary federal patent question whose resolution will have a broad impact on the federal patent system as a whole.
Whether federal patent laws preempt or invalidate the VCPA as applied has considerable significance beyond the current case. A hypothetical finding that the VCPA is not invalid or preempted in state court would affect the development of a uniform body of patent law, as such a decision would be binding in Vermont, but would not be in other states with similar laws or in federal court. The facts of this case are fundamentally unlike Gunn, in which the Court recognized that the federal issue was a “backward-looking . . . legal malpractice claim” that would be unlikely to have any “preclusive effect” on future patent litigation and was, therefore, not substantial. As an “as applied” challenge, counterclaim 5 depends to a certain extent on the specific facts of this case, but the resolution of this case would assist in delineating the metes and bounds of patent law and clarifying the rights and privileges afforded to patentees in pursuing patent infringement claims.
With that, the Federal Circuit found that it does indeed have appellate jurisdiction to hear the appeal.
At this point, you may be seeing a disconnect between the ultimate holding that I first described (effectively denying removal) and the new statute permitting removal of cases “in which any party asserts a claim for relief arising under any Act of Congress relating to patents” (§ 1454) – especially since the court just decided that the court here decided that MPHJ had indeed asserted a claim for relief arising under federal patent law. The resolution of that seeming conflict is procedural – “MPHJ has not appealed the district court’s ruling pursuant to 28 U.S.C. § 1454 [and thus] we have no occasion to address … how that newly enacted provision should be interpreted.”
The complicating factor is that it looks like the State court will now need to dismiss MPHJ’s preemption counterclaim because it arises under the patent law. 1338(a) and, at that point, MPHJ would seemingly have standing to file a federal declaratory judgment action raising preemption.
SCA Hygiene Products v. First Baby Products (Fed. Cir. 2015) (en banc)
On en banc rehearing, the Federal Circuit has ruled that the Supreme Court’s Petrella decision (eliminating the doctrine of laches for back-damages for copyright infringement) does not directly apply in the patent context.
All eleven members of the court agreed that, in the patent context, laches continues to be available in the context blocking equitable relief such as an injunction or ongoing royalties – when warranted by the equities. However, the court indicated (dicta here) that laches should only apply to ongoing royalties in “extraordinary circumstances.”
The 6-5 split was on whether laches can be used to eliminate back-damages for infringement that occurred within the six-year statutory limit. Here, the majority found that laches continues to apply.
Although laches is considered a judge-made equitable doctrine, the court smartly looked to the statute in reaching its conclusion. In particular, Section 282(b)(1) of the Patent Act states that “unenforceability” is a defense to allegations of patent infringement and back when the law was passed (1952) was understood to encompass defenses such as “laches, estoppel and unclean hands.” Taking this together, the court found that Congress meant for the laches defense to continue to work alongside the six-year limit on back-damages.
Congress remained silent on the content of the laches defense. Section 282 therefore retains the substance of the common law as it existed at the time Congress enacted the Patent Act. . . . Upon review, the case law demonstrates that, by 1952, courts consistently applied laches to preclude recovery of legal damages. Nearly every circuit recognized that laches could be a defense to legal relief prior to 1952. . . . Following a review of the relevant common law, that meaning is clear: in 1952, laches operated as a defense to legal relief. Therefore, in § 282, Congress codified a laches defense that barred recovery of legal remedies.
Challenging this point, the Dissent argued that the relevant “common law” for consideration should have come from the Supreme Court which, according to the dissent, indicated that laches was only a defense to equitable actions.
The legal history point of debate seems to be whether we should look at the general common law of laches or instead the common law of laches as applied to patent lawsuits?
Majority: If Congress looked to the common law, it likely looked to the common law of patents rather than to more general principles.”
Dissent: Patent law is governed by the same common-law principles, methods of statutory interpretation, and procedural rules as other areas of civil litigation.
With a one-judge majority, the law remains that laches is “a defense to legal relief in a patent infringement suit.”
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The majority here argues correctly that we should look to the statute and see what it tells us. That approach makes sense in all patent cases, regardless of the issue.
What the majority finds is that the statute implicitly binds the court to implement the equitable defenses available in patent cases back in 1952 (when the relevant amendment was passed). At the same time, the majority appears perfectly comfortable with the notion that the scope of the equitable actions will continue to adjust over time and were in no way fixed by their incorporation into the 1952 Act. Thus, when the court asks – what are the contours of the laches defense – it does not feel constrained to limit itself to 1952 precedent but instead looks directly to the recent Supreme Court decision in Petrella.
This portion of the saga focuses on Judge Koh’s refusal to award a permanent injunction against Samsung to prevent that company from continuing to infringe Apple’s slide-to-unlock patents. See U.S. Patent Nos. 5,946,647; 8,046,721; and 8,074,172. Judge Koh reasoned that Apple had not shown that it would suffer irreparable harm without injunctive relief.
In a split decision, the Federal Circuit has rejected the lower court’s holding – vacated and remanded.
Apple was able to show lost sales and other market harms due to Samsung’s competing sales – but the core of the fight is whether those harms are being caused by infringement of the patents in question. I.e., is there a “causal nexus” or proof of “some connection between the patented features and the demand for the infringing products.” The district court’s error here (according to the panel) was that it required apple to prove that the infringing elements were the sole or primary drivers of the infringing sales.
Thus, in a case involving phones with hundreds of thousands of available features, it was legal error for the district court to effectively require Apple to prove that the infringement was the sole cause of the lost downstream sales. The district court should have determined whether the record established that a smartphone feature impacts customers’ purchasing decisions. Though the fact that the infringing features are not the only cause of the lost sales may well lessen the weight of any alleged irreparable harm, it does not eliminate it entirely. . . .
Walking through some of the evidence, the appellate panel found that Samsung’s copying of infringing features was evidence of a causal nexus as was willful infringement. From the consumer viewpoint, the court identified evidence that consumers preferred infringing setup to non-infringing designs. And finally, Apple’s internal evidence showed that it saw the infringing features as critical aspects of the iPhone.
Given the strength of the evidence of copying and Samsung’s professed belief in the importance of the patented features as a driver of sales, and the evidence that carriers or users also valued and preferred phones with these features, the district court erred by disregarding this evidence, which further establishes a causal nexus and Apple’s irreparable harm.
Bringing this together, the court writes:
In short, the record establishes that the features claimed in the ’721, ’647, and ’172 patents were important to product sales and that customers sought these features in the phones they purchased. While this evidence of irreparable harm is not as strong as proof that customers buy the infringing products only because of these particular features, it is still evidence of causal nexus for lost sales and thus irreparable harm. Apple loses sales because Samsung products contain Apple’s patented features. The district court therefore erred as a matter of law when it required Apple to show that the infringing features were the reason why consumers purchased the accused products. Apple does not need to establish that these features are the reason customers bought Samsung phones instead of Apple phones—it is enough that Apple has shown that these features were related to infringement and were important to customers when they were examining their phone choices. On this record, applying the correct legal standard for irreparable harm, Apple has established irreparable harm.
On remand, we can expect Judge Koh to issue an injunction to stop Samsung’s ongoing infringement.
The following are a few key excerpts from the three decisions:
Judge Moore (Opinion of the Court):
The right to exclude competitors from using one’s property rights is important. And the right to maintain exclusivity—a hallmark and crucial guarantee of patent rights deriving from the Constitution itself—is likewise important. “Exclusivity is closely related to the fundamental nature of patents as property rights.” Douglas Dynamics, LLC v. Buyers Prods. Co., 717 F.3d 1336 (Fed. Cir. 2013),. And the need to protect this exclusivity would certainly be at its highest when the infringer is one’s fiercest competitor. Essentially barring entire industries of patentees—like Apple and other innovators of many-featured products—from taking advantage of these fundamental rights is in direct contravention of the Supreme Court’s approach in eBay. (“[E]xpansive principles suggesting that injunctive relief could not issue in a broad swath of cases . . . cannot be squared with the principles of equity adopted by Congress.”). . . .
If an injunction were not to issue in this case, such a decision would virtually foreclose the possibility of injunctive relief in any multifaceted, multifunction technology.
Judge Reyna (Concurring Opinion): Judge Reyna’s opinion is a strong push-back against eBay – arguing that infringement should create a presumption of irreparable harm:
I write to add that I believe Apple satisfied the irreparable injury factor based on Samsung’s infringement on Apple’s right to exclude and based on the injury that the infringement causes Apple’s reputation as an innovator. There is no dispute that Samsung has infringed Apple’s right to exclude and, absent an injunction, it will likely continue to do so. I believe that such a finding satisfies the irreparable harm requirement because the infringement is, in this case, “irreparable.” On reputational injury, the roles are reversed: it is undisputed that such an injury is irreparable; the question is whether this injury will likely occur. As I explain below, I believe that the record here—particularly the toe-to-toe competition between Apple and Samsung, Apple’s reputation as an innovator, and the importance of the patents-in-suit to that reputation—establishes that Apple will likely suffer irreparable harm to its reputation.
Chief Judge Prost in Dissent:
This is not a close case. One of the Apple patents at issue covers a spelling correction feature not used by Apple. Two other patents relate to minor features (two out of many thousands) in Apple’s iPhone—linking a phone number in a document to a dialer, and unlocking the screen. Apple alleged that it would suffer irreparable harm from lost sales because of Samsung’s patent infringement. For support, Apple relied on a consumer survey as direct evidence, and its allegations of “copying” as circumstantial evidence. The district court rejected both evidentiary bases. On the record of this case, showing clear error in the district court’s factual findings is daunting, if not impossible.
Guest post by David Bohrer, Patent Trial Practice, Valorem Law Group.
OIP Technologies v. Amazon.com and IPC v. Active Network are the most recent of a growing number of decisions dismissing software and business method patent lawsuits on the pleadings. In these decisions, the courts are finding that the invention alleged in the complaint is an abstract idea that is not eligible for patent protection.
While early resolution of patent litigation is laudable, motions directed to the pleadings generally may not consider matters outside what is pled in the complaint. Yet this is what courts are doing — they have been coloring outside the lines when deciding whether a patented software or business method is an ineligible abstraction. They are looking beyond the allegations in the complaint to discern “fundamental economic concepts.” Independent of anything pled in the complaint, they are making historical observations about alleged longstanding commercial practices and deciding whether the claimed invention is analogous to such practices.
Coloring outside the lines may not be acceptable. The benefit of providing an early exit from otherwise expensive and burdensome patent litigation may be outweighed by the prejudice to all parties of eroding the rules regarding the matters that may be considered before throwing out a lawsuit. Perhaps there is a better solution. Perhaps pleading motions challenging patent subject matter eligibility should be converted to expedited and limited scope summary judgment motions, thereby allowing the parties to present declarations, testimony and other extrinsic evidence that better address whether a claimed economic practice is an unpatentable idea or a patentable invention.
Alice is being used to obtain early dismissal of lawsuits based on software and business method patents
Courts granting patent ineligible subject matter motions are using the Supreme Court’s 2014 Alice decision as an effective weapon to combat vexatious patent litigation brought by non-practicing entities (NPEs). SeeCuriouser and Curiouser Is Alice the Long Sought Troll Killer _ The Legal Intelligencer. Alice provides relatively easy to satisfy requirements for demonstrating that an asserted software patent is claiming an “abstract idea” and therefore is not eligible for patent protection under section 101 of the patent statute.
Not only have courts found in Alice the tools necessary to dispose of vexatious patent lawsuits asserting software and business method patents, they also are willing to entertain an Alice challenge at the pleadings stage. The procedural posture of a pleading motion is key to using Alice to “kill trolls.” Defendants can challenge the merits of the patent lawsuit at the pleadings stage and before having to incur significant expenses associated with discovery, claim construction, experts and summary judgment. The nuisance value of the lawsuit goes way down. Defendants are less likely to feel they have to pay a distasteful settlement or else bear the much greater expense of defending on the merits.
Recent Federal Circuit decisions continue the trend
On June 11, 2015 and again on June 23, 2015, the Federal Circuit affirmed decisions by the Northern District of California dismissing software patent lawsuits at the pleading stage. In each of these cases, OIP Technologies v. Amazon.com (underlying patent claimed offer-based price optimization) and IPC v. Active Network(retaining information lost in the navigation of online forms) the district courts granted Rule 12(b)(6) motions to dismiss on the grounds that the patents claimed abstract ideas ineligible for patent protection.
In each case, the Federal Circuit approved the resolution of 101 eligibility at the pleading stage with little to no analysis. In IPC, the Federal Circuit’s opinion includes one sentence in which the court states that claim construction (which had not yet occurred) is “not an inviolable concept.” In OIP, the lead opinion does not address how early in litigation alleged ineligibility may be resolved, but in a concurring opinion Judge Mayer supports addressing eligibility at the motion-to-dismiss stage.
Failure to recite statutory subject matter is the sort of “basic deficiency,” that can, and should, “be exposed at the point of minimum expenditure of time and money by the parties and the court,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 558 (2007) (citations and internal quotation marks omitted). Addressing 35 U.S.C. § 101 at the outset not only conserves scarce judicial resources and spares litigants the staggering costs associated with discovery and protracted claim construction litigation, it also works to stem the tide of vexatious suits brought by the owners of vague and overbroad business method patents. Accordingly, where, as here, asserted claims are plainly directed to a patent ineligible abstract idea, we have repeatedly sanctioned a district court’s decision to dispose of them on the pleadings. See, e.g., Content Extraction & Transmission LLC v. Wells Fargo Bank, 776 F.3d 1343, 1349 (Fed. Cir. 2014); Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709, 717 (Fed. Cir. 2014); buySAFE, Inc. v. Google, Inc., 765 F.3d 1350, 1352 (Fed. Cir. 2014). I commend the district court’s adherence to the Supreme Court’s instruction that patent eligibility is a “threshold” issue, Bilski v. Kappos, 561 U.S. 593, 602 (2010), by resolving it at the first opportunity.
Contrary to the suggestion made by Judge Mayer, the Supreme Court has not addressed whether it is appropriate to address a 101 challenge at the pleading stage. Bilski’s characterization of patent eligibility as a “threshold” issue was made with reference to the 102 and 103 invalidity defenses and did not address the procedural issue. Bilski also cites to extrinsic economic treatises and other evidence of economic practice in support of the decision reviewing the denial of a patent application. Alice did NOT address patent eligibility in the context of a pleadings motion, but instead reviewed a patent eligibility ruling that was made at summary judgment. Alicecites to the same extrinsic economic evidence relied upon in Bilski.
There is not supposed to be any coloring outside the lines on pleadings motions
The well-established general rule is that Rule 12(b)(6) motions to dismiss as well as Rule 12(c) motions for judgment on the pleadings are limited to the well-pled factual allegations made in the complaint. “A court generally cannot consider material outside of the complaint (e.g., facts presented in briefs, affidavits or discovery materials).” Chavez v. United States, 683 F.3d 1102, 1108 (9th Cir. 2012); In re American Cont’l Corp./Lincoln Sav. & Loan Sec. Litig., 102 F.3d 1524, 1537 (9th Cir. 1996) (As recognized in OIP and IPC, the Federal Circuit applies regional circuit law in deciding motions to dismiss.).
Yet this is what is happening
Notwithstanding these rules, OIP and IPC each looked beyond the complaint in determining whether the asserted claims are directed to ineligible abstract ideas. In OIP, the asserted price optimization claims were deemed “similar to other ‘fundamental economic concepts’ found to be abstract ideas.” In IPC, the asserted online information retention claims were deemed “well-understood, routine, conventional activities previously known.” In each instance, the court is looking at practices and activities outside of anything alleged in the complaint.
These Federal Circuit cases teach that it is acceptable to consider matters outside of the complaint, as confirmed by Affinity Labs of Texas v. Amazon.com (June 12, 2015 WD Tex.), in which the magistrate judge, applying 101 precedent from OIP and other Federal Circuit decisions, says that it is making “general historical observations that come to mind.” Based on such extrinsic “historical observations,” the court finds that the claimed invention of delivering selectable media content and subsequently playing the selected content on a portable devices is a “long-standing commercial practice and is therefore abstract.”
The Court notes that the first transistor radio, which delivers selectable audio media to a portable device, was developed in the late 1940s and was immensely popular in the succeeding decades. Similarly, the first portable televisions, another form of delivering “selectable” media content to a portable device, were introduced in the 1980s and 1990s. The above examples represent just a few of the many general historical observations that come to mind as evidence of the long-standing commercial practice of delivering selectable media content and subsequently playing the selected content on a portable device.
Reliance on extrinsic evidence of economic practices and concepts found in precedent
OIP and IPC support their abstract idea findings by equating the economic purpose of the asserted patent with the economic concepts successfully challenged in other cases. For example, in OIP, the Federal Circuit says offer-based price optimization (at issue in OIP) is analogous to using advertising as an exchange or currency (deemed an abstract idea in the earlier Federal Circuit decision Ultramercial v. Hulu). Likewise, in IPC, the Federal Circuit said that recent precedent illustrates the boundary between abstraction and patent eligible subject matter. But how is the court in a position to make the connection between the asserted claims and prior precedent on its own observation and independent of expert testimony or other relevant extrinsic evidence? Judge Mayer and many other respected judges might reply that it is acceptable to make this connection because it is “plain” or “obvious.” Yet this seems to invite the application of 20-20 hindsight and of the “I know it when I see it” standard.
Can’t take judicial notice of truth of findings made in other decisions
Furthermore, while a court may take judicial notice of another court’s opinion in ruling on a motion to dismiss, it may do so only as to the existence of the opinion and not for the truth of the facts recited therein. Lee v. City of Los Angeles, 250 F.3d 668, 690 (9th Cir. 2001). It appears that cases such as OIP and IPC are relying on the truth of factual findings made in other decisions regarding whether certain economic concepts are “conventional” or “well-known” – such matters appear outside the scope of what may be judicially noticed in a motion to dismiss.
Possible solution is expedited and limited scope summary judgment motions
A court’s consideration of information outside the four corners of the complaint, assuming it does not fall within exceptions such as judicial notice, converts a motion to dismiss into a summary judgment motion. Lee, 250 F.3d at 688. True enough, this raises the specter of time-consuming discovery and case development (see the criticism of ED Texas Judge Gilstrap’s requirement that the parties demonstrate that there is a good faith basis for such a motion). This said, district courts have the discretion to expedite such motions as well as limit their scope. They could, for example, specifically require the responding party to submit to expedited discovery on the issue whether the asserted patent claims eligible subject matter followed by expedited briefing and submission of evidence on both the question whether the purpose of the asserted claims is a conventional economic concept and therefore an ineligible abstract idea, and if so, whether there is an inventive concept that saves the claim from dismissal. They could stay other case development or discovery during the expedited resolution of the motion. It does not necessarily follow that the court would have to conduct claim construction as part of the process. The parties, as they do now, could brief whether claim construction is necessary, but would also have greater flexibility in terms of their ability to submit proofs in support of their claim construction arguments. Woe unto the party who purports without any reasonable basis to have compelling extrinsic evidence that they are not asserting a conventional economic concept or that their patent is directed to a protected inventive concept– the district courts have ample support in High Octane and its progeny for awarding fees under such circumstances.
If courts are going to color outside the lines, then let the parties do the same thing
Courts are willing to color outside the lines and consider extrinsic evidence upon addressing motions to dismiss challenging alleged ineligible patent subject matter. This contravenes well-established rules and policies regarding pleading challenges and may cause undue prejudice by denying a party the ability to submit extrinsic evidence in support of a well-pled claim. A possible solution is for the court to allow the parties to color outside the lines as well. The court has the discretion to impose time and scope limits on discovery and briefing without opening the door to prolonged, vexatious litigation.
The Supreme Court had denied petitions for certiorari in three IP cases out of the Federal Circuit:
Google v. Oracle (Federal Circuit held that the Java API naming scheme was copyrightable and not an ineligible “system or method of operation”).
Google v. Vederi (Federal Circuit held that an amendment during prosecution to overcome a rejection need not be “strictly construed against the applicant”).
Ultramercial v. WildTangent (Federal Circuit held the patented method of distributing media content with advertising to be a patent ineligible abstract idea).
Apart from leaving-stand the particular holdings, these outcomes may collectively signal a time of out-breath for Supreme Court patent law jurisprudence. By my count, there are no patent decisions pending before the Court (with certiorari granted) and none of the petitions on file carry a substantial chance of being granted.
Rich Products Corporation asked Kenyon & Kenyon to file applications in Mexico and Columbia. Apparently, the firm timely filed the Mexican application as of how the law was then-interpreted; but the law later changed, and the application was deemed filed too late. Rich Products then sued the firm for malpractice. The New York Supreme Court, Appellate Division, held that because malpractice is measured at the time of the events, the lawyer had breached no duty. The case is here.
This is something I often think about, given the changing nature of the “rules” about claim interpretation. For example, certain claim formats have grown less helpful over the years. I also wonder how much this defense works if it’s a foreseeable change in the law (it’s not clear here what, exactly, changed in Mexican law).
The case was remanded to figure out the Columbian claim.
Opinion by Justice Kagan. Justice Alito filed a dissenting opinion joined by Chief Justice Roberts and Justice Thomas.
Drawing heavily on stare decisis, the Supreme Court has declined to overrule the rule in Brulotte v. Thys that a patentee cannot continue to receive royalties for sales made after the expiration of the patent based on principles of stare decisis. However, the Court leaves open the possibility of creative license drafting. From the opinion:
Patents endow their holders with certain superpowers, but only for a limited time. In crafting the patent laws, Congress struck a balance between fostering innovation and ensuring public access to discoveries. While a patent lasts, the patentee possesses exclusive rights to the patented article—rights he may sell or license for royalty payments if he so chooses. See 35 U. S. C. §154(a)(1). But a patent typically expires 20 years from the day the application for it was filed. See §154(a)(2). And when the patent expires, the patentee’s prerogatives expire too, and the right to make or use the article, free from all restriction, passes to the public. See Sears, Roebuck & Co. v. Stiffel Co., 376 U. S. 225, 230 (1964). This Court has carefully guarded that cut-off date, just as it has the patent laws’ subject-matter limits: In case after case, the Court has construed those laws to preclude measures that restrict free access to formerly patented, as well as unpatentable, inventions.
***
Brulotte was brewed in the same barrel. There, an inventor licensed his patented hop-picking machine to farmers in exchange for royalties from hop crops harvested both before and after his patents’ expiration dates. The Court (by an 8-1 vote) held the agreement unenforceable—“unlawful per se”—to the extent it provided for the payment of royalties “accru[ing] after the last of the patents incorporated into the machines had expired.” 379 U. S., at 30, 32. To arrive at that conclusion, the Court began with the statutory provision setting the length of a patent term. See id., at 30 (quoting the then-current version of §154). Emphasizing that a patented invention “become[s] public property once [that term] expires,” the Court then quoted from Scott Paper: Any attempt to limit a licensee’s post-expiration use of the invention, “whatever the legal device employed, runs counter to the policy and purpose of the patent laws.” 379 U. S., at 31 (quoting 326 U. S., at 256).
***
As against this superpowered form of stare decisis, we would need a superspecial justification to warrant reversing Brulotte. But the kinds of reasons we have most often held sufficient in the past do not help Kimble here. If anything, they reinforce our unwillingness to do what he asks.
Slip Op. at 3-4, 6, 10. Nonetheless, wary license drafters can work around Brulotte:
Yet parties can often find ways around Brulotte, enabling them to achieve those same ends. To start, Brulotte allows a licensee to defer payments for pre-expiration use of a patent into the post-expiration period; all the decision bars are royalties for using an invention after it has moved into the public domain. See 379 U. S., at 31; Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U. S. 100, 136 (1969). A licensee could agree, for example, to pay the licensor a sum equal to 10% of sales during the 20-yearpatent term, but to amortize that amount over 40 years.That arrangement would at least bring down early outlays, even if it would not do everything the parties might want to allocate risk over a long time frame. And parties have still more options when a licensing agreement covers either multiple patents or additional non-patent rights. Under Brulotte, royalties may run until the latest-running patent covered in the parties’ agreement expires. See 379 U. S., at 30. Too, post-expiration royalties are allowable so long as tied to a non-patent right—even when closely related to a patent. See, e.g., 3 Milgrim on Licensing §18.07, at 18–16 to 18–17. That means, for example, thata license involving both a patent and a trade secret can set a 5% royalty during the patent period (as compensation for the two combined) and a 4% royalty afterward (as payment for the trade secret alone). Finally and most broadly, Brulotte poses no bar to business arrangements other than royalties—all kinds of joint ventures, for example—that enable parties to share the risks and rewards of commercializing an invention.
Slip Op. at 6. Tom Cotter has already provided his own insightful commentary on the opinion over on ComparativePatentRemedies.
Side note: this may be the only judicial opinion ever to quote both my colleague Herb Hovenkamp and Stan Lee & Steve Ditko.
Automated Merchandising v. Michelle Lee raises yet another separation of powers issue between the courts and the patent office. Originally AMS sued Crane for infringing its U.S. Patent Nos. 6,384,402, 6,794,634, 7,191,915, and 7,343,220. In response, Crane filed (pre-AIA) inter partes reexamination requests against the patents. Then the lawsuit settled and the court issued a consent decree (final judgment) dismissing the case with prejudice and stating that the parties stipulate that the patent claims are valid. AMS took that decree to the USPTO who refused to terminate the reexamination because the final judgment was not a “decision” on the merits of validity. In response, AMS filed suit in the Eastern District of Virginia alleging violations of the Administrative Procedures Act (APA). Section 704 of the APA provides for review of agency actions:
Agency action made reviewable by statute and final agency action for which there is no other adequate remedy in a court are subject to judicial review.
However, the statute is clear that a non-final agency action is not reviewable.
According to the court’s judgment here the PTO’s refusal-to-terminate was an interlocutory order. Even though the PTO originally identified it as “final,” that designation alone is insufficient to meet the final action requirement of the statute. On remand, the inter partes review will continue and, if the patentee loses on the merits, may then have a chance to appeal the refusal-to-terminate.
This case adds further weight to the argument that we need a more comprehensive approach to the various pathways for enforcing and challenging patent rights.
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In B&B, the Supreme Court held that decisions by the PTO can have preclusive effect when the same issue is raised in a parallel litigation. In dicta, the court also indicated that preclusion also operates in the opposite direction — federal court decisions also have preclusive impact on PTO decision making. B&B is focused on the doctrine of issue preclusion that is also known as collateral estoppel.
Because issue preclusion requires that the issue be actually litigated, it does not apply to the AMS. However, the parallel doctrine of claim preclusion (res judicata) may indeed apply – that doctrine typically applies when a second dispute involves a a prior final judgment of a claim sharing a “common nucleus of operative fact” and (roughly) identical parties.
A complicating factor here is that – as to inter partes reexaminations – the Patent Act had a particular statute that could be seen as redefining the scope of issue and claim preclusion for patent cases.
Once a final decision has been entered against a party in a civil action arising in whole or in part under section 1338 of title 28, that the party has not sustained its burden of proving the invalidity of any patent claim in suit . . . , then neither that party nor its privies may thereafter request an inter partes reexamination of any such patent claim on the basis of issues which that party or its privies raised or could have raised in such civil action . . . , and an inter partes reexamination requested by that party or its privies on the basis of such issues may not thereafter be maintained by the Office . . . .
35 U.S.C. 317(b). The major question for this statute is whether it reflects an alteration of traditional rules of preclusion or instead offer an additional layer of preclusion when the traditional rules do not apply.
In our Fourth Annual Patent Law Moot Court here at Mizzou Law, the students are grappling another Myriad lawsuit asserting its BRCA1 gene patents. The question presented is whether the cDNA claims that the Supreme Court suggested are patent eligible could be voided as improperly claiming an abstract idea.
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Order: Presently before the Court is Defendant’s motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). In its oral motion, Defendants’ asserted that Claims 2 and 6 of Myriad’s U.S. Patent No. 5,747,282 are directed toward unpatentable subject matter under 35 U.S.C. § 101 as improperly claiming an abstract idea.[1] Plaintiffs disagreed and further responded that the issue had been foreclosed in its favor by the Supreme Court’s recent decision regarding the claim and patent at issue and that the issue was not the proper subject of a motion to dismiss.
Parties will brief the issue and particularly address the following:
Whether the asserted claims of the patent-in-suit are directed toward an unpatentable abstract idea in violation of the requirements of 35 U.S.C. § 101.
The direct impact of Association for Molecular Pathology v. Myriad Genetics, Inc., 133 S.Ct. 2107 (2013) on this motion.
Whether a challenge to subject matter eligibility is the proper subject of a motion to dismiss.
Briefs will be submitted simultaneously by 5:00 pm on April 6, 2015 and will otherwise follow the requirements set out in Local Rule 4.3. The Court will entertain oral arguments on April 10, 2015 at 3:30 pm. Each party will be given up to 20 minutes to present its case.
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[1] The parties have stipulated that Claim 2 is directed toward a cDNA version of the naturally occurring BRCA gene and that Claim 6 is a fragment of the cDNA sequence defined by Claim 2.
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Should be interesting. How would you argue the case for/against?
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SPONSOR US: I’m looking for a sponsor for the event so that I can give the winner a cash prize. A tax-deductable donation of $5,000 will fund the system for the next four years and get your name mentioned in Patently-O each year!
In B&B Hardware v. Hargis Indus. (2015), the U.S. Supreme Court involved a trademark opposition running in parallel with a trademark infringement lawsuit over the mark SEALTITE/SEALTIGHT. The general holding is that a final decision by the US Patent & Trademark Office’s Trademark Trial and Appeal Board (TTAB) can serve as issue preclusion to collaterally estop a court from re-judging already-decided issues. The particular issue being precluded here is the likelihood-of-confusion between the two marks, and the Supreme Court held that the TTAB’s final decision on likelihood-of-confusion could preclude that issue from being later litigated in the collateral action between the parties.
A court should give preclusive effect to TTAB decisions if the ordinary elements of issue preclusion are met.
Here, the “ordinary elements” of issue preclusion are that “[w]hen an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.” Restatement (Second) of Judgments §27.
In its decision, the Supreme Court recognized (1) that the TTAB is an administrative agency and not an Article III court; (2) that a right to a jury trial would exist in the infringement action absent preclusion; (3) that the details and procedures associated with the TTAB judging likelihood-of-confusion were somewhat different (but not fundamentally different) than that applied in the 8th Circuit; and (4) that – had the TTAB decision been challenged – it was not appealed.
And it is undisputed that a civil action in district court would entail de novo review of the TTAB’s decision. Ante, at 5.
Going forward, the court is clear that many TTAB decisions will not have preclusive effective — but that is because they fail the ordinary elements of preclusion and not simply because the TTAB is an administrative agency or because the TTAB usually decides cases in a certain way.
The 7-2 decision was penned by Justice Alito with a concurring opinion by Justice Ginsburg. Justice Thomas wrote in dissent and was joined by Justice Scalia. The dissent argued that the court should not simply presume that Congress intended agency decision to have preclusive effect.
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For patent attorneys, the case will have an obvious impact on the interplay between the Patent Trial and Appeal Board (PTAB) and parallel district court litigation. The same reasoning that led the Supreme Court to its decision in B&B will apply equally with determinations made during inter partes and post grant review proceedings. Importantly, issue preclusion applies to individual decisions of fact or law and thus may be important for sub-issues such as claim construction, scope and content of the prior art, level of skill in the art, etc.
Although B&B focused on traditional mutual issue preclusion, there is should also apply to defensive non-mutual issue preclusion that might arise when the defendant in an infringement action was not one of the parties in the IPR/PGR.
An important caveat: The Supreme Court recognized that issue preclusion won’t apply to agency decision when Congress so indicates. Here, there is an argument that the estoppel provisions in the IPR/PGR statutes suggest that Congress has opted out of the issue preclusion arena for these decisions.
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One of the most interesting lines from the opinion: “federal law does not create trademarks.” For that line, the court cited Trade-Mark Cases, 100 U. S. 82, 92 (1879) (“This exclusive right was not created by the act of Congress, and does not now depend upon it for its enforcement. The whole system of trade-mark property and the civil remedies for its protection existed long anterior to that act, and have remained in full force since its passage.”).
In a split decision, the Federal Circuit has affirmed a district court judgment that Senju’sU.S. Patent No. 6,333,045 is invalid as obvious. The patent covers an eye-drop formulation that is mixture gatifloxacin and EDTA (sold as Zymar) and has an interesting litigation history. In particular, this case represents the fourth time that the patent has been asserted in a lawsuit before Judge Sue Robinson (D.Del.). That history includes a prior finding by Judge Robinson that the claims were invalid as obvious. Following that original obviousness decision, Senju successfully shepherded the claims through an ex parte reexamination. In that process, the PTO confirmed the patentability of the claims once amended to include a specified concentrations of the aforementioned ingredients (e.g., “about 0.3 to about 0.8 w/v%” of gatifloxacin and “about 0.01 w/v%” of EDTA). Following reexamination, the court blocked Senju from asserting the reexamined claims against the same party (Apotex) who won the first obviousness decision — finding that claim to be precluded. However, the court did allow assertion of the new claims against new parties – here Lupin and Hi-Tech Pharma. However, after considering the same prior art as the USPTO, Judge Robinson found the revised claims still obvious based upon -again – the same prior art.
On appeal, the Federal Circuit affirms – holding that the district court’s conclusion of obviousness was correct. In the process the Federal Circuit appeared to give no deference to the USPTO reexamination determinations other than to require clear and convincing proof of the factual underpinnings of the obviousness determination. See Sciele Pharma Inc. v. Lupin Ltd., 684 F.3d 1253, 1260 (Fed. Cir. 2012) (“Whether a reference was previously considered by the PTO, the burden is the same: clear and convincing evidence of invalidity.”). The appellate court did agree that the amendments during reexamination did refresh the patent claims so as to reestablish the presumption of validity in the face of the prior invalidity ruling.
Regarding the added concentration limitation of “0.01 w/v% EDTA,” the two sides fought over whether that concentration level was suggested by the prior art studies. The court writes:
At bottom, the district court’s analysis rests largely on a determination that Lupin’s experts were more credible than Senju’s experts. Based on this determination, the district court found that [the Prior Art] Grass 1988-I, along with the other cited references, taught that 0.01 w/v% EDTA would be effective to increase corneal permeability. On the evidence before us, that determination by the district court falls well within the wide discretion the court has to weigh expert credibility. Ordinarily, and absent compelling reason otherwise, an appellate court defers to such credibility determinations.
With that (and some further analysis), the court affirmed the obviousness finding.
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Judge Plager drafted the majority opinion that was joined by Judge Moore. Writing in dissent, Judge Newman argued that the courts should “give deference” to the PTO’s review of the narrowed claim scope and its conclusions regarding the unexpected results associated with the newly narrowed claims. Judge Newman further writes:
The prior art is crowded. . . . However, no combination of prior art references shows or suggests the use of very low concentrations of EDTA to enhance the corneal permeability of antibiotic formulations of gatifloxacin, or of any other quinolone. . . . The panel majority relies on the unsupported opinion of Lupin’s expert witness, and gives that unsupported opinion greater weight than the experimental data.
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Although PTO reexamination decisions are not given deference in this type of third-party challenge, there are some reasons to think that IPR/PGR decisions should be given deference under the APA. However, it is unlikely that the Federal Circuit would come to that conclusion without first being led by either Congress or the Supreme Court.
The list below considers all of the U.S. Supreme Court patent cases decided during the past decade (Since January 2005) and ranks them according to the number of citations. Citation offers some insight into the influence of decisions, but is obviously limited for a number of reasons. Cases may be cited because of their importance in changing the doctrine (KSR, eBay) or simply as the court’s most recent statement of the law on an important issue (Microsoft v. i4i and KSR) or for a narrow procedural issue that applies in many cases (Unitherm). EBay’s high citation rate is also boosted because its principles have been applied broadly to injunctive relief across many areas of law. Some cases with low citation counts may also have major impacts. They may, for instance impact a small number of very important cases (Caraco) or perhaps they cause folks to change behavior so that the issue stops arising.
With this list we also have the timeline problem where older cases are more likely to be highly cited since there has been more opportunity for those cites. I Alice Corp to rise in the ranks Nautilus and Teva, on the other hand, may well flounder (based upon the Federal Circuit’s treatment of those cases thus far).
KSR Intern. Co. v. Teleflex Inc., 550 U.S. 398 (2007) (obviousness)
eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) (injunctive relief)
MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007) (challenging licensed patents)
Global-Tech Appliances, Inc. v. SEB S.A., 131 S.Ct. 2060 (2011) (inducing infringement)
Bilski v. Kappos, 561 U.S. 593 (2010) (subject matter eligibility)
Microsoft Corp. v. i4i Ltd. Partnership, 131 S.Ct. 2238 (2011) (presumption of validity)
Illinois Tool Works Inc. v. Independent Ink, Inc., 547 U.S. 28 (2006) (tying)
Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008) (exhaustion)
Microsoft Corp. v. AT & T Corp., 550 U.S. 437 (2007) (infringement by export of components)
Unitherm Food Systems, Inc. v. Swift-Eckrich, Inc., 546 U.S. 394 (2006) (post-verdict civil procedure requirements)
Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S.Ct. 1289 (2012) (patent eligibility)
Carlsbad Technology, Inc. v. HIF Bio, Inc., 556 U.S. 635 (2009) (appellate jurisdiction)
Merck KGaA v. Integra Lifesciences I, Ltd., 545 U.S. 193 (2005) (research exception to infringement)
F.T.C. v. Actavis, Inc., 133 S.Ct. 2223 (2013) (competition law – drug settlements)
Gunn v. Minton, 133 S.Ct. 1059 (2013) (federal jurisdiction over cases involving patent law)
Lexmark Intern., Inc. v. Static Control Components, Inc., 134 S.Ct. 1377 (2014) (unfair competition based upon false infringement allegations)
Nautilus, Inc. v. Biosig Instruments, Inc., 134 S.Ct. 2120 (2014) (indefiniteness)
Already, LLC v. Nike, Inc., 133 S.Ct. 721 (2013) (standing after covenant not-to-sue)
Board of Trustees of Leland Stanford Junior University v. Roche Molecular Systems, Inc., 131 S.Ct. 2188 (2011) (ownership under Bayh-Dole)
Association for Molecular Pathology v. Myriad Genetics, Inc., 133 S.Ct. 2107 (2013) (subject matter eligibility)
Alice Corp. Pty. Ltd. v. CLS Bank Intern., 134 S.Ct. 2347 (2014) (subject matter eligibility)
Limelight Networks, Inc. v. Akamai Technologies, Inc., 134 S.Ct. 2111 (2014) (divided infringement)
Caraco Pharmaceutical Laboratories, Ltd. v. Novo Nordisk A/S, 132 S.Ct. 1670 (2012) (forcing correction of Orange Book listings)
KSR has actually rocketed to the position of most-cited Supreme Court patent case of all time followed by Markman (1996); U.S. Gypsom (1948) (antitrust-patent); Graham v. Deere (1966); and Warner-Jenkinson (1997).
The Supreme Court has denied MadStad Engineering’s petition for writ of certiorari in its case arguing that the first-to-file patent system is unconstitutional because the new law awards rights for the filing of a patent application and no longer requires invention.
Rather than reaching the merits, the district court found that MadStad lacked standing to file the lawsuit because the plaintiff could not prove any particular injury due to the law’s enactment. That decision was then affirmed by the Federal Circuit. The denial of certiorari here appears to end this particular lawsuit. However, I expect that another party – perhaps one whose patent application has been rejected under the new law – will take-up the mantle and force a court to address the real issue.
In Teva v. Sandoz, the Supreme Court raised the standard of appellate review of a district court’s factual conclusions regarding extrinsic evidence relied upon during claim construction proceedings. Although the decision represents a relatively small change in procedural law, it is important, both because claim construction has become such a major element of patent litigation and because the Court of Appeals for the Federal Circuit has a history of reversing a high percentage of claim construction decisions.
I asked a handful of patent law experts for their instant thoughts on the decision (and gave them strict word limits). Douglas Kline, Chair of Goodwin Procter’s IP Litigation Group spells out the basic first-order result of the case:
From now on, when a district court resolves factual disputes concerning extrinsic evidence bearing on patent claim construction, the Federal Circuit will review those subsidiary factual findings for clear error. This should result in the Federal Circuit affirming some claim construction decisions it might have overturned under the old standard.
Thinking forward about how parties will react, MBHB Partners Joshua Rich and Andrew Williams suggest higher reliance on expert testimony and thus higher litigation costs:
Today’s decision is likely to increase the cost and complexity of claim construction because it encourages parties to introduce extrinsic evidence, especially expert testimony, in an attempt to maximize deference to a favorable decision. And some trial courts may end up relying on that extrinsic evidence to insulate their decisions.
Joshua Rich & Andrew Williams, partners at McDonnell Boehnen Hulbert & Berghoff. “At the district court level, the new standard of review will likely mean more reliance on experts in interpreting the claims.” Dominick Conde, partner at Fitzpatrick, Cella, Harper & Scinto LLP.
Providing Guidance: The decision itself does a nice job of detailing the level of review for each different aspect of a claim construction ruling. Paul Hughes from Mayer Brown LLP comments that “the Court provided unusually robust prospective guidance to aid the Federal Circuit in distinguishing questions of fact from questions of law.”
As usual, Professor Lefstin’s comments are both insightful and linked to historic evidence. Here, Lefstin disagrees slightly with Hughes in that some surprising aspects of claim construction should also be considered extrinsic evidence.
As Justice Traynor pointed out long ago, sources of meaning such as dictionaries and the judge’s personal linguistic experience are ‘extrinsic.’ Under Justice Breyer’s holding, the act of consulting a dictionary – which is how a court might determine “the meaning of a term in the relevant art during the relevant time period” – seems entitled to deference.
Jeffrey A. Lefstin, Professor of Law, UC Hastings College of Law. However, Lefstin – along with others – believes that the ultimate change in the law is too slight to make much difference. Or, perhaps more pointedly, Lefstin’s argument is that the Teva decision leaves the Federal Circuit with power to continue reviewing claim construction without deference.
Ultimately it will make no difference, since the CAFC can review without deference the district court’s assignment of that meaning “in the context of the specific patent claim under review.” The opportunities for the CAFC to frame construction as a contextual inquiry are so pervasive that Teva will serve only to generate pointless disputes over the extrinsic/intrinsic and isolated/contextual boundaries.
Lefstin. Recognizing this same point, Professor Liivak explains that a legal analysis is still required for claim construction which will be reviewed de novo.
There is still ample room for de facto de novo review. The district court “must” conduct a “legal analysis” on whether the factual determination is relevant in the “context of the specific patent claim under review.” This is where all the maneuvering will be.
Oskar Liivak, Professor of Law, Cornell Law School. With reference to the disputed “molecular weight” claim term in this case, Liivak foresees that the Federal Circuit could fairly easily modify its opinion to satisfy the Supreme Court without changing its ultimate determination.
On remand as to this claim term, a very few words have to change but the outcome need not: the factual determination about SEC is quite plausibly irrelevant to interpretation of the intrinsic evidence in Fig. 1.
Liivak. The question – in Professor David Berry’s mind is whether the CAFC will “flex its muscles” on the issue. If not, we can “look for more expert testimony, especially on the crucial question of what the claim meant to those in the art. That finding frequently will be dispositive, and may insulate the whole construction from de novo review.” Professor David C. Berry, Western Michigan University – Cooley Law School.
Fallacy of Predictability: One of the key policy goals of deference is to provide predictability – at least once the district court construes the claims. Professor Mark Janis sees the potential that this particular outcome will, unfortunately, not aid that goal. Still, Janis has some optimism. He writes:
A long-overdue ruling. But it’s one that leaves CAFC judges ample room to defer (or not) in any given case. The CAFC’s challenge is to demonstrate that it can implement Teva in the service of better predictability – which may require some CAFC judges to set aside cherished views about who really gets to call the shots in claim construction.
Mark D. Janis, Robert A. Lucas Chair of Law, Center for Intellectual Property Research, Indiana Univ. Maurer School of Law. I agree with the fallacy of predictability given by deference, but at an even deeper level. If I may quote myself:
My problem with the decision is that giving deference on review only masks the major problem that claim scope is not well understood until decided by a court. Claim scope should be clearly understood at the time of issuance.
Dennis Crouch, Professor at the University of Missouri School of Law.
Who Benefits?: Erich Spangenberg is the CEO of nXn Partners and founder and former CEO of IPNav. He has been on the patent-owner side of a very large number of patent lawsuits and he tends to provide insight that is spot on. In my prior article on Teva, I suggested that patentees will prefer the new rule and Spangenberg agrees, with caveats:
The appellate reversal rate was too high and created far too much uncertainty. If what Teva means is that we are going to have greater certainty, faster resolution as a result of fewer reversals and the occasional district court decision that gets it wrong—I am in favor. My enthusiasm is tempered by the likelihood that there are a few years of disputes as the new boundaries are defined—but longer term, this is a positive.
Erich Spangenberg.
Professor Roger Ford recognizes that “who benefits” may well depend upon the case:
How [Teva] will play out is unclear, since litigants don’t always know, before construction, what review standard they’d prefer. Optimistic parties may prefer deferential review, assuming they’ll win; risk-averse ones may prefer having two chances to win.
Roger Ford is Assistant Professor of Law at the University of New Hampshire School of Law.
Evidentiary Hearings: Few courts conduct evidentiary hearings as part of claim construction. Going against the tide, Michael Risch doesn’t foresee any change in that reality:
A key question after Teva will be whether District Courts are more likely to hear extrinsic evidence just because findings get deference. Given likely reversal if the intrinsic evidence is clear, I don’t see why they would waste their time that way.
Michael Risch, Professor of Law, Villanova University School of Law. Implicit in Professor Risch’s remarks is the conclusion that the Phillips “intrinsic first” approach continues to reign. Dean Holbrook believes that conclusion is correct:
The Federal Circuit will continue to use the Phillips hierarchy, turning to extrinsic evidence only when the intrinsic evidence is ambiguous. I think, in the main, the Federal Circuit will view the intrinsic evidence as determinative, retaining de novo review in the vast majority of cases.
Timothy R. Holbrook, Associate Dean of Faculty and Professor of Law, Emory University School of Law.
Changing Claim Construction: Dean Holbrook’s conclusion is not universally supported. Professor Jason Rantanen argues instead that Teva may have more generally changed the nature of claim construction:
As I read Teva, the Court endorses a claim construction process where the judge begins with the extrinisic evidence about a claim term, decides what the extrinsic evidence establishes for that term and then determines whether the way the patent uses the term is inconsistent with the established ordinary meaning of the term. This approach is more consistent with Texas Digital than Phillips.
Jason Rantanen, Associate Professor of Law, University of Iowa College of Law. Rantanen does fully agree with others that significant power is now in the Federal Circuit’s hands — in particular, he “fully expects the Federal Circuit to disagree with [his] reading” of the case. Eileen M. Herlihy, a da Vinci Fellow at George Mason CPIP, recognizes a particular evidentiary focus here – the person having ordinary skill in the art. She notes that the court once again “reemphasizes the patent law specific importance of the PHOSITA, thereby adds to recent Supreme Court cases asserting this perspective.”
Although Rantanen in his claim-construction-shift compares precedent, Professor Shubha Ghosh encourages creative lawyering in suggesting alternative “styles of claim construction”
Teva teaches that patent claims consist of law, reviewed de novo, and evidence, reviewed for clear error. Unanswered is what mix of law and evidence forms the basis for claim construction. The Federal Circuit’s and rulings favored strict constuction. The Court’s decision here opens the floodgates for experimentation by advocates and judges in different styles of claim construction.
Shubha Ghosh, Vilas Research Fellow and George Young Bascom Professor
of Intellectual Property and Business Law, University of Wisconsin,
Madison, Law School.
Exceptionality: One theme of Supreme Court patent cases over the past decade is that patent law need not always be so exceptional – i.e., different from other areas of law. Rather, when traditional principles apply across doctrines, then they should apply to patent law as well. Referencing eBay, an early case in this trend, Professor Clifford writes:
Patent law is not unique when balancing must be done before granting equitable relief. Now, as is required for other legal documents such as contracts, we must separate interpretation of the words used (a matter of fact) from the meaning and effect they have (a matter of law).
Ralph D. Clifford, Prof., Univ. of Massachusetts School of Law. Similarly, Professor Landers writes that “Teva underscores the Supreme Court’s view that (like eBay and Holmes v. Vorando) the procedural aspects of patent cases are not exceptional.” Prof. Amy Landers, Drexel University Kline School of Law. “Teva has broad significance because it … conforms patent law to other areas of the law on a matter of proper appellate function.” Eileen M. Herlihy, da Vinci Fellow at George Mason CPIP.
Indefiniteness and ambiguity have been important topics in recent patent law cases. Profesor Laakmann reminds us that the setup for the Teva case is not so-much claim construction but instead the lower court determination that the claim was unduly ambiguous and therefore invalid as indefinite.
The case turns on whether there is cognizable distinction between a claim term being factuallyambiguous (and thus amenable to extrinsic evidence under a “clearly erroneous” standard of review) and legallyindefinite (and thus invalid under 112 under a de novo standard of review). This is the crux of the disagreement between the majority and the dissent – the majority says “yes” and the dissent says “no.”
Anna Laakmann is an Assistant Professor at Lewis and Clark Law School. On remand, an important feature of the case is that the lower courts will also now need to work-in the new standard of indefiniteness from Nautilus.
At the PTO: For the most part, we’re talking about patent litigation. However, Professor Joe Miller thinks that there may be a broader impact on USPTO practice as well:
Justice Breyer, speaking for a split Court’s majority, set aside a Federal Circuit patent validity determination. According to the Court, the Federal Circuit had not reviewed the lower tribunal’s key factual findings with the greater deference the controlling rule requires. Today’s decision in Teva v. Sandoz? Sure. But also 1999’s Dickinson v. Zurko, 527 U.S. 150 (1999). Teva’s main effects may well be felt at the PTO.
Joe Miller, Professor, University of Georgia Law School.
Although there are differing perspectives here, the overarching thought is that we’ll have to wait to see what the Federal Circuit does — which is exactly the result deference is supposed to avoid.
– Dennis
* Thanks to my colleagues for providing their interesting input on this article.
In NeuroRepair v. Nath Law Group (Fed. Cir. 2015), the Federal Circuit has dismissed NuroRepair’s malpractice case against its patent prosecution attorneys – holding that the Federal Courts lack subject matter jurisdiction because the case does not arise under the patent law. Citing Gunn v. Minton, 133 S. Ct. 1059 (2013). The basics of the case here appear to be that the client was upset with the defendants alleged (1) lack of communication; (2) ineffective pursuit of the patent application; and (3) failure to accurately record and bill time. However, the district court had sided with the attorneys – finding no malpractice.
Although patent attorneys are regulated by the USPTO’s Office of Enrollment and Discipline (OED), malpractice cases are generally based upon state law – here, the plaintiff alleged “professional negligence, breach of fiduciary duty, breach of written contract, breach of oral contract, breach of implied covenant of good faith and fair dealing, negligent misrepresentation, and false promise” – all of which are protected by California law rather than Federal Law. The lawsuit was originally filed in California State Court (Superior Court) but then removed by the defendants to Federal Court on the grounds that the case “related to patents.”
All of that occurred prior to the Supreme Court’s decision in Gunn v. Minton. And, as in the Gunn case, the plaintiff has appealed – asking that the entire case be set aside because of a lack of subject matter jurisdiction.
Federal Law provides for exclusive federal jurisdiction over patent cases – this means that state courts cannot decide patent infringement cases. However, there exists a large grey area of cases that arise under a state cause of action (such as breach of contract or legal malpractice) but that turn on an interpretation of either a patent or the Patent Act. Are those “patent cases?”
In Gunn v. Minton, the Supreme Court released most of this grey-area to state court jurisdiction — holding that a state law claim relating to patents creates arising under jurisdiction if it “necessarily raise[s] a stated federal [patent] issue, [2] actually disputed and [3] substantial, [4] which a federal forum may entertain without disturbing any Congressionally approved balance of federal and state judicial responsibilities.” Quoting Grable & Sons Metal Products, Inc. v. Darue Engineering & Mfg., 545 U. S. 308 (2005). The Court went on to note that malpractice cases will “rarely, if ever, arise under federal patent law” because their resolution will not substantially impact the patent laws.
The Nath case here was fairly easy to decide because the court found only one patent law issue necessary for decision — whether the patent could have issued earlier and with broader claims. As in Gunn, the appellate court here found that issue not of substantial importance to the patent system and that relegating cases such as this to Federal Court would “disrupt the federal-state balance.”
The case ends with an order to the district court to remand the case back to California state court where the plaintiff will get another shot at proving malpractice.
Two pending Supreme Court now have higher profiles with the Supreme Court’s invitation to the Solicitor General to provide views of the administration. In both cases, the petitioners have set-up the Federal Circuit as a misguided court.
The focus of Google v. Oracle (Sct. Docket No. 14-410) is the extent that software is eligible for copyright protection. The petition asks:
Whether copyright protection extends to all elements of an original work of computer software, including a system or method of operation, that an author could have written in more than one way.
Unlike patent law, the copyright eligibility statute includes a set of express exclusions. In particular, although “original works of authorship” are generally eligible for copyright protection, “[i]n no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.” 17 U.S.C. § 102(b). In its decision the Federal Circuit found Oracle’s Java API taxonomy copyrightable as a whole. In particular, the appellate panel led by Judge O’Malley rejected the idea/expression merger doctrine since there are many other ways that functionally equivalent method-calls could have been constructed besides those found in Java. “Merger cannot bar copyright protection for any lines of declaring source code unless Sun/Oracle had only one way, or a limited number of ways, to write them.” [Read my prior discussion here and here]
The second case – also involving Google – is Google v. Vederi (Sct. Docket No. 14-448). In that case, the Google raises the following question:
Whether, when an applicant for a patent amends a claim to overcome the PTOs earlier disallowance of the claim, a court should (i) presume that the amendment narrowed the claim and strictly construe the amended claim language against the applicant, as this Court has held; or (ii) presume that the claim scope remained the same and require that any narrowing be clear and unmistakable, as the Federal Circuit has held.
Although the first part of the question is interesting, the second part appears quite misguided as Federal Circuit law does not presume that claims maintain the identical scope following an amendment to overcome a rejection by the PTO. That said, the Federal Circuit has strayed significantly from Pre-1952 disclaimer law exemplified by cases such as Supply Co. v. Ace Patents Corp., 315 U.S. 126, 137 (1942); Keystone Driller Co. v. Nw. Eng’g Corp., 294 U.S. 42, 48 (1935); Smith v. Magic City Kennel Club, Inc., 282 U.S. 784, 789–90 (1931); I.T.S. Rubber Co. v. Essex Rubber Co., 272 U.S. 429, 443–44 (1926); and Hubbell v. United States, 179 U.S. 77, 84 (1900).
The general rule is that all co-owners of a patent must join together as plaintiffs less the case be dismissed. In STC.UNM v. Intel, the Federal Circuit ruled that, while co-owners are necessary parties, they may not be involuntarily joined. That decision is in some tension with Fed. R. Civ. Pro. Rule 19 that empowers a court to order the joinder of a necessary party. In the case, STC and Sandia National Labs co-own U.S. Patent No. 6,042,998, but Sandia refused to participate in the case.
In a new filing, STC has petitioned the Supreme Court for a writ of certiorari with the following question:
Rule 19 of the Federal Rules of Civil Procedure provides that where a necessary party to a lawsuit has not been joined, “the court must order that the person be made a party.” The Court of Appeals for the Federal Circuit ruled below that Rule 19 is “trumped” by a purported “substantive rule” that a co-owner of a patent can “impede an infringement suit brought by another co-owner.” The majority opinion below stands in stark contrast to this Court’s precedents. For over seventy years, this Court has rejected every statutory challenge to a Federal Rule that has come before it.
The petition particularly argues that the Federal Circuit decision is in conflict with Sibbach v. Wilson, 312 U.S. 1 (1941) and its progeny.
The original decision was authored by Judge Rader (joined by Dyk) with Judge Newman in dissent. In its 6-4 en banc denial, Judge Dyk authored an opinion concurring with the denial (joined by Moore and Taranto) while both Judges Newman (joined by Lourie, O’Malley, and Wallach) and O’Malley (joined by Newman, Lourie and Wallach) dissented from the en banc denial.
I give the case a better-than-average odds for certiorari and, if granted, the court would likely reverse.
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The ownership-tale of the case is a seeming malpractice nightmare. Briefly, the invention stems out a joint research project between employees at UNM and Sandia. Three of the named inventors were UNM employees while the fourth (Draper) worked at Sandia. In 1996, Draper signed an assignment of his rights in the first patent to UNM but then a few months later assigned his rights to Sandia and the new assignment was filed as correction being “made in error” since it had erroneously identified Draper as an employee of UNM. UNM did not challenge this new filing, but at times in the subsequent decade made several statements regarding its sole ownership of the first patent.
The patent in suit is is based upon the first patent but excludes Draper as an inventor. (UNM later filed a certificate of correction to formalize the relationship as a continuation in part). Because of the difference in inventor-employer rights, it would seem that UNM would have full rights to the continuation. However, in order to overcome an obviousness-type-double-patenting rejection, UNM filed a terminal disclaimer in the second case, linking its term and ownership to that of the first patent. Of course, at the time, the two patents seemingly did not have the same ownership structure and UNM indicated to the USPTO that it was “the owner of record of a 100 percent interest” in the second patent. In the present lawsuit, however, STC eventually admitted that the corrected Draper assignment was effective to give Sandia ownership rights in both the first patent and the second. And that admission appears to be treated as an assignment of rights to Sandia if such is necessary.
