Tag Archives: Supreme Court

Supreme Court to test its Spidey-Sense in Patent-Antitrust Case

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The Supreme Court has granted certiorari in the patent licensing case of Kimble v. Marvel Enterprises (13-720) with the following question:

Whether the Court should overrule Brulotte v. Thys Co., which held that “a patentee’s use of a royalty agreement that projects beyond the expiration date of the patent is unlawful per se.”

The policy goal behind the 1964 Brulotte decision is to avoid the potential antitrust harm associated with an ongoing patent monopoly beyond the 20-year term.  However, antitrust law has generally moved away from this sort of per se rule – especially as to freedom-of-contract.

In this case, the patentee’s patent has expired, but the license agreement seemingly calls for ongoing payments even beyond expiration.  The Ninth Circuit held that, under Brulotte, Marvel is no longer required to pay royalties on its sales of the Spider-man toy.  The Solicitor General recommend that the Supreme Court not take the case — a move that I called “somewhat surprising” since the government had previously noted that Brulotte does not mesh well with contemporary antitrust practice.

With Brulotte on the chopping block, we can also expect that the holding in Lear v. Adkins, 395 U.S. 653 (1969). In that case, the court held that a contractual promise not to challenge a patent’s invalidity is unenforceable.

Supreme Court Sanctions for Faulty Brief

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Anyone who read Sigram Schindler’s petition for writ of certiorari would have walked away confused.  To say that the petition makes little sense is perhaps over stating its value.  The question presented by Schindler was as follows:

Does the US Constitution, in legal decisions based on 35 USC §§ 101/102/103/112, require instantly avoiding the inevitable legal errors in construing incomplete and vague classical claim constructions – especially for “emerging technology claim(ed invention)s, ET CIs” – by construing for them the complete/concise refined claim constructions of the Supreme Court’s KSR/Bilski/Mayo/Myriad/Biosig/Alice line of unanimous precedents framework, or does the US Constitution for such decisions entitle any public institution to refrain, for ET CIs, for a time it feels feasible, from proceeding as these Supreme Court precedents require – or meeting its requirements just by some lip-service – and in the meantime to construe incomplete classical claim constructions, notwithstanding their implied legal errors?”

The Supreme Court has now – as expected – denied the petition.  However, the court took a major step further — ordering Schindler’s Supreme Court attorney to “show cause … why he should not be sanctioned”:

D-2827 IN THE MATTER OF DISCIPLINE OF HOWARD NEIL SHIPLEY

Howard Neil Shipley, of Washington, D.C., is ordered to show cause, within 40 days, why he should not be sanctioned for his conduct as a member of the Bar of this Court in connection with the petition for a writ of certiorari in No. 14-424, Sigram Schindler Beteiligungsgesellschaft MBH v. Lee.

The brief was filed by Howard Shipley of the Foley firm along with his partner George Quillen.  Although I do not know, I suspect that the Foley firm agreed to file the brief as drafted by Dr. Schindler and without providing any substantive input or editing.

Tony Mauro has more.

This case is unlikely to help shift the Supreme Court’s perspective on the Federal Circuit and the current state of patent law doctrine.

 

Supreme Court: A Web of Post-Issuance Licensing Restrictions

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by Dennis Crouch

Last year I wrote about the patent licensing decision captioned Kimble v. Marvel Enterprises Inc. (9th Circuit 2013). Kimble involved a patent license agreement tied to Marvel’s web-shooter toy sales. On its face, the agreement appears to remain in force so long as Marvel sold the toys.  However, the 9th Circuit held that the license ended once the patent term lapsed.  The 9th Circuit decision was easy because there is a Supreme Court case on point: Brulotte v. Thys Co., 379 U.S. 29 (1964) (licensing agreement unenforceable because it required royalty payments beyond the expiration date of the underlying patent).

Kimble has now pushed the case to the Supreme Court and presents a straightforward petition:

The question presented is: Whether this Court should overrule Brulotte v. Thys Co., 379 U.S. 29 (1964).

SCOTUS-Blog Link.

The basic argument is that the Brulotte improperly imposes a per se limit on contract structure and forces any royalty payments to be amortized only within the term of the patent.  Often, that result does not make business sense. Kimble suggests that the court do-away with the per se rule and replace it with a rule of reason as it has done in other cases – most notably in the area of patent-tying.  See Illinois Tool Works v. Independent Ink, 547 U.S. 28 (2006).

The petition also characterizes Brulotte as “the most widely criticized of [the Supreme] Court’s intellectual property and competition law decisions.”

Three panels of the courts of appeals (including the panel below), the Justice Department, the Federal Trade Commission, and virtually every treatise and article in the field have called on this Court to reconsider Brulotte, and to replace its rigid per se prohibition on post-expiration patent royalties with a contextualized rule of reason analysis.

The Supreme Court requested that the Solicitor General file the views of the US Government and those have just been filed – with a somewhat surprising recommendation against a grant of certiorari.  The SG’s position is that stare decisis should prevail. Hal Wegner writes about the case in his review of top pending patent cases: See Wegner’s Top Ten.

Unduly Extending Patent Term: An important element of the analysis here is whether overturning Brulotte would somehow allows the patentee to extend its patent term and thereby prevent the public from taking advantage of the invention.  Kimble argues “no” — all that the longterm license agreement did was amortize the license value over the life of the product rather than the life of the patent.  Certainly, once the patent expires then no-one can be liable for infringement and any generic (or branded) company can make, use, and sell the invention as it wishes. However, if we look at this case in particular, all of the products on the market using the patented invention are Kimble-licensed products — even though the patent has been expired now for years.  This suggests to me that the post-expiry-license is having a market impact that is reducing the potential customer surplus.  I suspect that in most situations, the most likely post-patent-expiry suppliers of a product are the companies who were supplying that product pre-patent-expiry.  If those entities are required to continue to pay license post-patent-expiry then consumers may never see the benefits typically associated with patent expirations.

= = = = =

One factor pushing toward grant of certiorari is the underlying subject-matter.  The patent at issue covers a nifty web-shooting toy designed to mimic (in toy form) spider-man’s super powers. See U.S. Patent No. 5,072,856.

Spidey

Supreme Court: A Good-Faith-But-Incorrect-Belief that the Patent is Invalid

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by Dennis Crouch

Someone who induces infringement is just as liable for infringement as the one who actually commits the underlying act of direct infringement. 35 U.S.C. § 271(b).  However, unlike direct infringement, inducement has a substantial mens rea or scienter requirement that the inducer knew at-the-time that the induced conduct would infringe the particular patent. In Global Tech (2011), the Supreme Court held that the knowledge element can be satisfied by proof that the inducer was willfully blind to the risk of infringement.

In Commil v. Cisco, the Federal Circuit addressed a slightly different question — and that question is now pending before the US Supreme Court:

Does an inducer’s good faith belief that a patent is invalid negate inducement liability?

One way to think about this is to go back to Global Tech and ask what the Supreme Court meant when it said “infringement.”  Was the Court referring only to the elements of proving direct infringement under 271(a) or instead was the Court referring more generally to infringement liability.  While 271(a) is a narrower concept that generally ignores validity issues, the broader concept of infringement liability draws-in defenses that may be available such as invalidity or unenforceability.

An important consideration here is that this good-faith-belief of invalidity is only critical for the discussion if it turns out that the asserted claims are actually valid and enforceable. So, we’re really talking about a good-faith-but-incorrect-belief that the claims are invalid. In this type of situation, I worry about the generation of self serving evidence that fall under the CYA/BS classification.

In any event, the Federal Circuit panel here ruled that “evidence of an accused inducer’s good-faith belief of invalidity may negate the requisite intent for induced infringement.”  [See Rantanen on Commil]. The patentee (Commil) then petitioned for Supreme Court review and the Court asked for the views of the US Government.

In its newly filed amicus brief, the US Goverment (through the Solicitor General) has agreed with the patentee that the Federal Circuit is wrong and that the accused’s invalidity belief is irrelevant to the question of inducement liability.

This Court should grant Commil’s petition for certiorari (No. 13-896) with respect to the first question presented. The court of appeals erred in holding that a person who knowingly induces another to engage in infringing conduct may avoid liability under Section 271(b) by demonstrating that it had a good-faith belief that the infringed patent was invalid. This Court’s review is warranted to prevent defendants from avoiding inducement liability on a ground that is inconsistent with the text, structure, and purposes of the relevant Patent Act provisions.

In its analysis, the SG basically walks through the statute (that separates the notion of infringement from invalidity defenses) and the key cases of Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476 (1964) (Aro II) and Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060 (2011).  In particular, with Aro II, the patentee had mailed a pre-suit notice letter to the defendant and the Supreme Court in that case seems to have treated that communication as conclusively satisfying the mens rea requirement.

Commil’s petition included a second question and Cisco also submitted its own question – both of these involved the necessity and propriety of ordering a new trial.  The US Government amicus brief recommend that neither of those questions be reviewed.

Read the USG amicus brief here.

 

Federal Circuit Defies Supreme Court in Laches Holding

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by Dennis Crouch

SCA Hygiene v. First Quality (Fed. Cir. 2014)

Rather than focusing on a single event, allegations of patent infringement generally involve a series of actions that each constitute an infringement.  Courts identify each act (making, using, selling, …) as a separate and actionable infringement of the patent.  This notion of repeated acts of infringement (the “separate-accrual rule”) is only occasionally important, but comes up most often in the context of the impact of delays in pursuing court action with the effect of making delays look less egregious.

The Patent Act includes a six-year limitation on collecting back-damages. 35 U.S.C. 286. The old equitable doctrine of laches has also traditionally been available to cut-off damages when the patentee unreasonably and inexcusably delayed in bringing suit.  Under the Federal Circuit’s 1992 en banc Aukerman decision, courts generally apply the same six-year timeline for laches – finding that a six-year delay in filing suit creates a presumption of unreasonable delay that, when coupled with detrimental reliance leads to a laches finding.  Although it only creates a presumption of unreasonableness, in my experience, this six-year delay makes laches much much more likely to be found. Laches then has the ordinary result of cutting-off all pre-suit damages. However, based on the aformentioned theory of individualized acts of infringement, a remedy remains available for infringement that occurs after the lawsuit is filed as well as the potential for further equitable relief to stop future infringement.

Laches is based on a tradition of equity and has no direct tie-in to the patent statute itself. Likewise, Laches is not found in the list of defenses under Section 282 nor identified as an aspect of the statutory limitation on damages. Of course, that is the tradition of equity — existing for times when the law fails.

Putting this entire area somewhat astir is the Supreme Court’s 2014 copyright laches decision in Petrella v. Metro-Goldwyn-Mayer, 134 S.Ct. 1962 (2014).  In similar manner to patent law, the copyright statute has a three-year statute of limitations on filing suit.  In the case, the (alleged) copyright holder had delayed for 18-years in filing suit.  The statute-of-limitations cut-off all but the last three years of recovery and the lower court found that laches blocked recovery for those remaining three years.  However, in Petrella the Supreme Court revived the copyright claim and held instead that laches should not apply because Congress has taken fully spoken on the issue with its statute.

Laches, we hold, cannot be invoked to preclude adjudication of a claim for damages brought within the three-year window. . . .  [L]aches is a defense developed by courts of equity; its principal application was, and remains, to claims of an equitable cast for which the Legislature has provided no fixed time limitation. See 1 D. Dobbs, Law of Remedies 104 (1993) (“laches . . . may have originated in equity because no statute of limitations applied, . . . suggest[ing] that laches should be limited to cases in which no statute of limitations applies”). Both before and after the merger of law and equity in 1938, this Court has cautioned against invoking laches to bar legal relief. See Holmberg v. Armbrecht, 327 U. S. 392 (1946) (in actions at law, “[i]f Congress explicitly puts a limit upon the time for enforcing a right which it created, there is an end of the matter,” but “[t]raditionally . . . , statutes of limitation are not controlling measures of equitable relief “); Merck & Co. v.Reynolds, 559 U. S. 633 (2010) (quoting, for its current relevance, statement in United States v. Mack, 295 U. S. 480 (1935), that “[l]aches within the term of the statute of limitations is no defense [to an action] at law”); County of Oneida v. Oneida Indian Nation of N. Y., 470 U. S. 226, n. 16 (1985) (“[A]pplication of the equitable defense of laches in an action at law would be novel indeed.”).

An important element of the holding is the ongoing separation of legal and equitable remedies — with the notion that laches may still be obtained to block equitable remedies, but not to bar a traditional legal remedy such as past-damages.

In Petrella, the Supreme Court limited its particularly holding to copyright law and noted that “[w]e have not had occasion to review the Federal Circuit’s position” on laches in patent cases. Of course, the parallels between copyright and patent are strong in this situation and so we would expect the Federal Circuit to seriously consider whether Petrella should be applied to overrule Aukerman.

SCA v. First Quality: In 2003, SCA sent a C&D letter to First Quality in 2003 regarding patented adult diapers. However, in 2004, SCA filed for ex parte reexamination that was completed in 2007 with a confirmation of patentability. Finally, in 2010, SCA filed the lawsuit against First Quality.  By that time (beginning in 2006) First Quality had greatly expanded its use of the underlying concepts of the invention (it doesn’t leak).  Rather than deciding the lawsuit, the district court dismissed the case based upon the delay finding both laches and equitable estoppel.

On appeal, the Federal Circuit has affirmed – most notably holding that the Petrella decision has no impact on the adjudication of laches in patent cases.  However, rather than addressing the clear and obvious tension, the court simply wrote:

Petrella notably left Aukerman intact. See id. at
1974 n.15 (“We have not had occasion to review the Federal Circuit’s position.”). Because Aukerman may only be overruled by the Supreme Court or an en banc panel of this court, Aukerman remains controlling precedent.

While clinging to the Aukerman approach, affirmance was easy because the six-year delay creates a strong presumption of unreasonable delay.  However, the court did reverse the summary judgment of equitable estoppel because there was no evidence of the required affirmative act such as a misleading communication leading to detrimental reliance on the notion that the defendant’s infringement would be permissible.

The decision here is notable for its glaring reticence. The panel of Judges Reyna, Wallach, and Hughes are all relatively new and perhaps expect en banc review of this issue.  Many (perhaps most) other judges on the court would have made their mark rather than simply passing.

Although I believe, on balance, that Petrella controls here, the case is not open-and-shut because there are important distinctions as you move from copyright to patent. Notably, the copyright statute of limitations is a more direct and total limit on filing suit while in patent law the statute only limits the collection of too-far-back damages. Thus, in this situation, Congress seems to have spoken more fully in the copyright realm. Additionally, the three versus six year limit appears important because, in the time-scale of lawsuits and three years is a relatively short time while six-years begins to allow for much more unreasonableness and detrimental reliance.  That time differential is further compounded by the fact that three years is quite a small bit of the copyright term (5%) while six-years is often more than 1/3 of the patent term — suggesting that a patentee’s should move more quickly.

If anything, this issue will be interesting to watch.

Federal Circuit Reminds Courts of Discretion on Fee Awards

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By Jason Rantanen

Icon Health & Fitness, Inc. v. Octane Fitness, LLC (Fed. Cir. 2014) (nonprecedential) Octane Fitness Remand
Panel: Newman, Mayer, and Lourie

In Octane Fitness v. Icon the Supreme Court rejected the “objectively baseless” legal standard that the Federal Circuit had been applying in exceptional case determinations.  Procedurally, the appeal was of the district court’s ruling that this case was not exceptional under 35 U.S.C. § 285, which the Federal Circuit had affirmed under its then-authoritative standard.  Following remand by the Supreme Court, the Federal Circuit has itself now remanded the case back to the district court for further proceedings consistent with the new legal standard.

Most of the nonprecedential opinion involves a straightforward recitation of portions of the Court’s holding:

The Supreme Court abrogated both the clear and convincing evidence standard and the two-part test for objective baselessness and subjective bad faith of Brooks Furniture. Octane, 134 S. Ct. at 1757–58. The Court held that within the context of § 285 “an ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” Id. at 1756. The Court further concluded that “[d]istrict courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances.” Id. The Court explained that there is no precise rule or formula for making those determinations and noted that district courts should exercise “equitable discretion” in considering a nonexclusive list of factors that could include “‘frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.’” Id. at 1756 n.6 (quoting Fogerty v. Fantasy, Inc., 510 U.S. 517, 534 n.19 (1994)). The Supreme Court also observed that “a case presenting either subjective bad faith or exceptionally meritless claims may sufficiently set itself apart from mine-run cases to warrant a fee award.” Id. at 1757.

Slip Op. at 5-6. However, the Federal Circuit also took the opportunity to remind district court judges that the inquiry does not end with the exceptional case determination.  Specifically, under earlier Federal Circuit precedent, the court held that district courts can continue to apply their discretion even after a case is determined to be exceptional:

The Supreme Court’s decision in Octane did not, however, revoke the discretion of a district court to deny fee awards even in exceptional cases. Long before Brooks Furniture, we held that “an exceptional case does not require in all circumstances the award of attorney fees.” S.C. Johnson & Son, Inc. v. Carter-Wallace, Inc., 781 F.2d 198, 201 (Fed. Cir. 1986); see also Gardco Mfg., Inc. v.
Herst Lighting Co., 820 F.2d 1209, 1215 (Fed. Cir. 1987) (“After the district court determines that a case is exceptional, there remains in every case its freedom to exercise its discretion informed by the court’s familiarity with the matter in the litigation and the interest of justice.” (internal quotations omitted)). Indeed, in the companion case Highmark, the Court held that “[b]ecause § 285 commits
the determination whether a case is ‘exceptional’ to the discretion of the district court, that decision is to be reviewed on appeal for abuse of discretion” and that
district courts should have discretion in “all aspects of [the] § 285 determination.” Highmark, 134 S. Ct. at 1748–49.

Slip Op. at 6.  The court goes on to remand the whole mess back to the district court to apply its discretion under the new standard (and presumably, to also apply its discretion to the award of fees).

What I find particularly fascinating about this whole area of law is that there is a substantial line of intertwined Section 284 and 285 cases that deal with the district court’s discretion on fee awards after a finding of willful infringement or that a case is exceptional.  These cases (which often involve an analysis under the factors set out in Read Corp. v. Portec, Inc., 970 F.2d 816, 826–27 (Fed.Cir.1992) are essentially a totality of the circumstances analysis.  This produces two interesting results.  First, although I haven’t fully thought through whether two issues are sufficiently parallel, it seems that there’s a relevant body of law on totality of the circumstances analyses in this context that already exists that courts will be able to draw upon when applying the Court’s new standard for exceptional case determinations.  Second, how should the analysis play out if both the exceptional case determination and the decision to award fees (and how much those fees should be) involve essentially the same totality of the circumstances inquiry?  Does it make sense to retain a formal distinction between the exceptional case determination and the amount of the fee award?  My sense is that the answer is yes, particularly since there will inevitably be factors in the amount-of-fee determination that are not relevant in the is-the-case-exceptional determination (for example, I have seen a district judge apportion fees based on what happened with which patents, with fees being granted for attorney activity in connection with one patent but not when the activity was solely related to other patents involved in the litigation).

Court Finds Patent Invalid; Then Orders Defendant to Stop Infringing

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By Dennis Crouch

Following the Supreme Court’s equitable relief decision in eBay, many patentees have found it difficult to obtain injunctive relief to stop ongoing infringement – even after final judgment that the patent is both valid and infringed.

In a recent decision, the District Court Judge Blake (D.Md.) seemingly flipped eBay on its head by enjoining TWi Pharma from making or selling a generic version of Par’s patented Megace ES formulary. The upside-down element of the decision is that the order granting the injunction issued only after the court found the patent claims invalid as obvious. Par Pharma v. TWi Pharma, 1-11-cv-02466 (MDD August 12, 2014, Order). To be clear, the order here is not for permanent relief, but only relates to injunction pending appeal.

The doctrine involving the grant of equitable relief pending appeal is a bit squirrelly – especially at the district court level because the general setup involves the court deciding that its decisions are likely wrong. Recognizing that, the law does not require the moving party to show that its case is a likely winner but only a substantial likelihood that the requested equitable relief will be entered as a result of the appeal. Applying this standard, the district court writes:

Par claims that it will succeed on the merits because this court erred in its application of the law with respect to motivations to combine the prior art and inherency. Although the court stands by its judgment, it recognizes that the case presents a close call. Further, the Federal Circuit will conduct a de novo review of whether the ‘576 patent is obvious, including whether this court properly interpreted the law regarding motivation and inherency. . . . The court is not persuaded Par has demonstrated a “strong” likelihood of success on appeal—especially given that most of its dispute with this court’s earlier decision is only rehashing the legal arguments it has already made. Par has, however, made a showing of a substantial case.

The district court joined this “substantial case” on appeal with strong evidence of irreparable harm absent relief in its decision to grant the injunction pendente lite.

Regarding the ‘public interest’ element of equitable relief, the court found that element neutral.

The court recognizes that the public is served by the availability of low-cost generic medications, especially where an invalid patent has previously barred their entry into the market. On the other hand, the public also has an interest in the protection of valid patents because it promotes innovation. This factor, therefore, is neutral.

An interesting and problematic element of the court’s decision here is that the doctrinal approach makes it easier for a patentee to obtain temporary relief following an adverse final judgment (of invalidity) than prior to such a judgment. The doctrinal difference highlighted by the court between preliminary injunctive relief pending final judgment and post-decision relief pending appeal is simply that the proof of likelihood-of-success is reduced for relief pending appeal. This is obviously problematic because in the second case, the court will have already reached a final judgment that the patentee loses.

In making its decision, the district court applied Federal Circuit precedent regarding relief pending appeal. However, those cases relate generally to the asymmetrical situation of staying-injunctive relief pending appeal rather than, as here, granting injunctive relief pending appeal.

There is a better approach that still recognizes the potential need for injunctive relief pending appeal and that is simply requiring a greater showing of need for relief (irreparable harm; balance of hardships; public interest) when the likelihood-of-success element is reduced.

Supreme Court Patent Cases Per Decade

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The Chart below is an update of one I published earlier this year. The new chart adds in a couple of extra cases that I had previously not included and also takes account of the Supreme Court’s spate of decisions this term, including Alice v. CLS Bank (subject matter eligibility); Nautilus v. Biosig (indefiniteness); Limelight v. Akamai (divided infringement for inducement); Highmark v. Allcare (attorney fee awards in exceptional cases); Octane Fitness v. Icon Health & Fitness (attorney fee awards in exceptional cases); and Medtronic v. Boston Scientific (burden of proving infringement always falls on patentee even in licensee DJ actions). Readers should also note that the decade of 2010’s is not yet ½ completed and the Court has already granted writ of certiorari in one pending action: Teva v. Sandoz (standard of appellate review for factual findings that serve as the underpinnings for claim construction). We can expect that the trend will continue over the next several years with special focus on the new rules and procedures stemming from the America Invents Act of 2011. Note – my list largely agrees with Prof Ouellette’s

The Supreme Court’s Alice Decision on Patent Eligibility of Computer-Implemented Inventions: Finding an Oasis In the Desert

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Guest Post by Donald S Chisum, Director of the Chisum Patent Academy and author of Chisum on Patents.

In Alice (June 19, 2014), the Supreme Court held that the two step framework for determining the Section 101 patent-eligibility of a patent claim, which the Court previously articulated in the 2012 Mayo decision on the patentability of a diagnostic method, applied to computer-implemented inventions.  Thus, one determines: (1) does the claim recite an ineligible concept (natural phenomena, natural law or abstract idea), and (2) if so, does the claim recite sufficient additional elements to make the claim one to an application of the concept, rather than to the concept itself?

On Mayo step one, Alice held that the claims at issue were to an abstract idea, an “intermediated settlement.”  On step two, it held that “merely requiring generic computer implementation” did not “transform that abstract idea into a patent-eligible invention.”  Thus, claims to a method, a computer system configured to carry out the method, and a computer-readable medium containing program code for performing the method all fell invalid under Section 101.

I considered but then reconsidered entitling this comment “Alice in Wonderland.”  For, indeed, the Supreme Court’s chain of decisions creating a judicial exception to the statute defining patent eligible subject matter (35 U.S.C. § 101) and holding unpatentable claims to algorithms and abstract ideas, stretching from Benson in 1972 to Alice in 2014, is wondrous.  But I will not here review the “big picture,” including the fundamental flaws in the chain; I and others have already done that.

Instead, my focus is on the “small picture,” the every day problem: does the Alice opinion provide some meaningful guidance to fill the near void left by the Court in its prior Mayo and Bilski decisions?  Those decisions provided no definition of an “abstract idea” (or “law of nature”) and little direction on, precisely, how much “more” was required for the transformation.

The Court’s fuzz left stranded in a desert of uncertainty an array of feet-on-the-ground decision makers, from inventors to rights owners to patent professionals drafting and amending claims to examiners to PTO officials to licensing negotiators to litigators to district court judges to federal circuit judges to treatise authors.

Positive news.  At least on first analysis of Alice, I find some additional guidance, perhaps enough to lead us toward an oasis in the desert.

In particular, the Alice opinion supports the following proposition:  a novel and unobvious solution to a technical problem is not an “abstract idea,” and a claim drawn to such a solution, even if broad, is not subject to the Mayo framework (though, of course, it is subject to scrutiny for disclosure support).

The Alice opinion does not state the proposition directly.  The Court expressly indicated that it did not need to “delimit the precise contours of the `abstract ideas’ category” because the concept at issue was so similar to that in Bilski.  But the proposition is fairly inferred from the Court’s rejection of the patent owner’s argument that the intermediated settlement concept in its claims was not an “abstract idea” within the implicit exception to Section 101 and from its novel description of the prior Diehr decision.

Based on prior Supreme Court cases and language in Mayo, the patent owner argued that the definition of “abstract ideas” for Section 101 was: “preexisting, fundamental truths that exist in principle apart from any human action.”  The Court disagreed because that definition did not fit Bilski, which held that risk hedging was an abstract idea. Hedging was a “longstanding commercial practice” and a “method of organizing human activity,” but not a “truth” about the natural world that “always existed.”  Hedging and the similar concept of intermediated settlement were abstract ideas because they were “fundamental economic practices.”

Thus, concepts that constitute abstracts ideas fall into two categories.  First are mathematical equations, mathematical formulae and algorithms (at least ones of a mathematical nature, and, I would emphasize, not all algorithms are mathematical or numerical).  Second are methods of “organizing human activity,” at least if they constitute a fundamental economic practice “long prevalent in commerce.”

What’s left out of the “abstract idea” category?  The Court in Alice declined to say explicitly, but there are hints in its discussion of the 1981 Diehr decision in connection with the second Mayo step.  The Court noted that Diehr had held a computer-implemented process for curing rubber was patent eligible, not because it involved a computer but rather because “it used that equation in a process designed to solve a technological problem in `conventional industry practice.”  It reiterated: “the claims in Diehr were patent eligible because they improved an existing technological process, not because they were implemented on a computer.”  In contrast, the claims in Alice did not “improve the functioning of the computer itself” or “effect an improvement in any other technology or technical field.”

The Court had discussed and distinguished the Diehr case before, in both Bilski and Mayo, but never on the basis that Diehr entailed a technological improvement.  Thus, the Alice discussion of Diehr in terms of a solution to a technical problem is important new ground.

Hence there are strong grounds for the proposition that a patent claim reaches a safe harbor from Section 101 abstract idea scrutiny, including the Mayo second question for an “inventive concept,” if the claimant establishes that the claim is directed to a solution of a technological problem.  This definition of abstract idea as excluding applied technology accommodates the case law treating pure mathematical statements, economics and finance, and schemes of a non-technical character (“methods of organizing human activity”) as “abstract ideas” that must be include additional elements to achieve patent eligibility (Mayo step two).

Is this shift in focus to “technological” an oasis of greater clarity?  No doubt there will be arguments about what is technological and what is not.  But there are at least three advantages to the verbal change.  First, technology is the historic core of the patent system, especially given  the Constitutional phrase “useful Arts,” which is 18th century terminology for “technology” in 21st century terminology.  Thus, an inquiry about the technological is much less of an alien intruder than prior Supreme Court language about the abstract idea exception to Section 101.  Second, evaluating the Section 101 abstract idea prohibition in terms of technological versus non-technological conforms to the language Congress used in Section 18 of the America Invents Act in setting up special PTO review of business method patents.  Finally, a technology test aligns the United States standard with the language used in Europe and elsewhere to address exceptions to patent eligible subject matter.

Supreme Court asks for SG’s Views on Hearing Another Inducement Case

Patent,

Commil USA v. Cisco Systems (Supreme Court 2014)

In its decision on this case, the Federal Circuit offered three separate opinions, with Judge Prost authoring a majority opinion and Judges Neman and O’Malley each dissenting-in-part (each disagreeing with a different part of the majority opinion). See Jason Rantanen, Commil v. Cisco: Issues of validity “may” negate intent for inducement, Patently-O (2013). Professor Rantanen writes:

The primary issues addressed by the court [involved] a pre-Global-Tech jury instruction [on induced infringement] and the appropriateness of considering validity when determining whether the accused party possessed the requisite state of mind for inducement of infringement.  All three judges on the panel agreed that the jury instruction was both erroneous and prejudicial while Judges Prost and O’Malley agreed that issues of validity may be considered in the intent inquiry.

Both parties petitioned the Supreme Court for review and the high court has now given those petitions a breath of life by requesting that the Solicitor General file an amicus brief providing its views on whether a grant of certiorari is warranted. If certiorari is granted, the case would be heard next term.

Commil (the patentee) asks: 

1. Whether the Federal Circuit erred in holding that a defendant’s belief that a patent is invalid is a defense to induced infringement under 35 U.S.C. § 271(b).

2. Whether the Federal Circuit erred in holding that Global-Tech v. SEB, 131 S.Ct 2060 (2011) required retrial on the issue of intent under 35 U.S.C. § 271(b) where the jury (1) found the defendant had actual knowledge of the patent and (2) was instructed that “[i]nducing third-party infringement cannot occur unintentionally.”

The appellate panel ordered a partial retrial on the issue of induced infringement.  Cisco (the accused infringer who lost the original trial) asks:

Whether, and in what circumstances, the Seventh Amendment permits a court to order a partial retrial of induced patent infringement without also retrying the related question of patent invalidity.

Supreme Court: To Be Valid, Patent Claims Must Provide Reasonable Certainty Regarding the Claim Scope

Patent, , ,

By Dennis Crouch

Nautilus v. BioSig (Supreme Court 2014) [New download here: 13-369_k53m]

Patents provide exclusive rights that are defined by a set of claims. The claims spell out the metes-and-bounds of the invention being claimed and are designed to put the world on notice of what is and what is not infringement. To facilitate this notice function of patent claims, the patent statute requires that the “claims particularly point[] out and distinctly claim[] the subject matter which the inventor or a joint inventor regards as the invention.” 35 U.S.C. § 112(b). The courts have wrapped these requirements in a doctrine known as indefiniteness. A patent claim that fails the test of indefiniteness is deemed unpatentable, invalid, and unenforceable.

Most patent claims have some amount of ambiguity in their scope. The question before the court in this case is how much is too much? Through a series of cases, the Federal Circuit has implemented was arguably a stiff test of indefiniteness – making it quite difficult to find a claim invalid as indefinite. As the Supreme Court writes:

According to the Federal Circuit, a patent claim passes the §112, ¶2 threshold so long as the claim is “amenable to construction,” and the claim, as construed, is not “insolubly ambiguous.”

In its opinion here, the Supreme Court found that the insolubly ambiguous fails to apply the statutory requirement noted above. In its place, the court has created a new test as follows:

A patent is invalid for indefiniteness if its claims, read in light of the specification delineating the patent, and the prosecution history, fail to inform, with reasonable certainty, those skilled in the art [at the time the patent was filed] about the scope of the invention. . . . .

The standard we adopt accords with opinions of this Court stating that “the certainty which the law requires in patents is not greater than is reasonable, having regard to their subject-matter.” Minerals Separation, Ltd. v. Hyde, 242 U. S. 261, 270 (1916). . . .

It cannot be sufficient that a court can ascribe some meaning to a patent’s claims; the definiteness inquiry trains on the understanding of a skilled artisan at the time of the patent application, not that of a court viewing matters post hoc. To tolerate imprecision just short of that rendering a claim “insolubly ambiguous” would diminish the definiteness requirement’s public-notice function and foster the innovation-discouraging “zone of uncertainty,” against which this Court has warned.

On remand, the Federal Circuit will decide whether the particular claims at issue here meet that test.

In the decision, the court highlights the reality that the old rule offers an incentive for patentees to intentionally “inject ambiguity into their claims.” The new standard is intended to help eliminate that standard.

Key points and ongoing issues from the opinion:

  • The addition of a reasonableness inquiry into the analysis means that indefiniteness appears to be moving be moving away from a question of law and into factual territory. The issue has traditionally been seen as part-and-parcel of claim construction, but now has the potential of being shifted to a question for trial. Of particular note here is the Supreme Court’s reluctance to decide the particular case and its allusion to the notion that the result “may turn on evaluations of expert testimony.” (quoting Markman).
  • The Supreme Court indicates that “a patent” will be invalid based upon the failure of its claims. The longstanding practice of the Federal Circuit is that indefiniteness is done on a claim-by-claim basis, but here the court suggests that approach should change.  Assuming that indefiniteness is still considered on a claim-by-claim basis, one outcome of this decision is that it adds additional value to patents with multiple claim formulations.
  • The Supreme Court indicates that any ambiguity should be considered “at the time the patent was filed” and also that the patent’s prosecution history are important in the consideration. What is unclear then is whether the court intended to mean that the consideration should be at the patent issuance, the application actual filing date, the application’s effective filing date (taking into account priority claims to prior filed applications), or the date that the claims in question were filed / amended.

Oregon Supreme Court Permits Patent Firm to Claim Privilege Over Communications with Internal Counsel

Ethics, ,

Given the conversation in posts below about interpreting statutes, this case is interesting for reasons beyond the issue involved.  In Crimson Trace Corp. v. Davis Wright Tremaine LLP (Or. May 30, 2014), the court held that a law firm could claim privilege over communications between a lawyer who was concerned about litigating a patent case where one of the firm’s own lawyers was accused of inequitable conduct and the firm’s in-house lawyers.

The court noted that some courts had recognized a “fiduciary exception” to privilege, which basically bars a lawyer who owes a fiduciary duty to a client to assert privilege against it.  However, the court noted that those courts that had recognized this exception were in common law jurisdictions, not ones, like Oregon, where the scope of privilege and its exceptions were set by the legislature.  Given that the legislature had spoken on the subject, the Oregon court held that it was not free to make-up additional exceptions.

Of course, CLS bank will be just like it in that regard. ha, ha.

Supreme Court Rejects Expanded Inducement Doctrine

Patent,

By Dennis Crouch

Limelight Networks v. Akamai Tech. (Supreme Court 2014)

In an 11-page unanimous opinion, the Supreme Court has rejected the Federal Circuit’s expansion of the inducement doctrine – holding instead that inducement must be tied to underlying direct infringement. The Patent Act provides that “[w]hoever actively induces infringement of a patent shall be liable as an infringer.”

[O]ur case law leaves no doubt that inducement liability may arise”if, but only if, [there is] . . . direct infringement.” Aro Mfg. Co. v. Convertible Top Replacement Co., 365 U. S 336, 341 (1961) (emphasis deleted).

One might think that this simple truth is enough to dispose of this appeal. But the Federal Circuit reasoned that a defendant can be liable for inducing infringement under §271(b) even if no one has committed direct infringement within the terms of §271(a) (or any other provision of the patent laws), because direct infringement can exist independently of a violation of these statutory provisions.

The Federal Circuit’s analysis fundamentally misunderstands what it means to infringe a method patent. A method patent claims a number of steps; under this Court’s case law, the patent is not infringed unless all the steps are carried out. This principle follows ineluctably from what a patent is: the conferral of rights in a particular claimed set of elements. “Each element contained in a patent claim is deemed material to defining the scope of the patented invention,” Warner-Jenkinson Co. v. Hilton Davis Chemical Co., 520 U. S. 17, 29 (1997), and a patentee’s rights extend only to the claimed combination of elements, and no further.

The opinion is harsh toward the Federal Circuit, but somewhat poorly written. In particular, the Supreme Court seems to have misunderstood that the Federal Circuit holding actually does require all steps of the method to be carried out in order for a finding for inducement. The Court questions:

What if a defendant pays another to perform just one step of a 12 step process, and no one performs the other steps, but that one step can be viewed as the most important step in the process? In that case the defendant has not encouraged infringement, but no principled reason prevents him from being held liable for inducement under the Federal Circuit’s reasoning, which permits inducement liability when fewer than all of a method’s steps have been performed within the meaning of the patent.

Of course, the Federal Circuit’s decision in this case would not allow infringement in this scenario either.

The Supreme Court recognized and concurred with the policy goal behind the Federal Circuit’s doctrine as serving to help prevent “a would-be infringer” from evading liability “by dividing performance of a method patent’s steps with another whom the defendant neither directs nor controls.” However, the Supreme Court concurred with other commentators that a primary cause of this concern stems from the Federal Circuit’s unduly strict “single actor” rule for determining direct infringement. Muniauction. The Court writes:

Any such anomaly, however, would result from the Federal Circuit’s interpretation of §271(a) in Muniauction. A desire to avoid Muniauction’s natural consequences does not justify fundamentally altering the rules of inducement liability that the text and structure of the Patent Act clearly require—an alteration that would result in its own serious and problematic consequences, namely, creating for §271(b) purposes some free-floating concept of “infringement” both untethered to the statutory text and difficult for the lower courts to apply consistently.

On remand, there is a good chance that the Federal Circuit will reconsider (and expand) the single-actor rule for direct infringement to more fully account for common law traditions of respondeat superior liability.

Supreme Court: In Copyright, Laches Cannot Preclude Actions Taken Within Three Year Statute of Limitations

Copyright, Laches, Patent, Patent Cases 2014, Supreme Court, , , , ,

By Dennis Crouch

Petrella v. MGM (Supreme Court 2014)

Frank Petrella wrote a screenplay back in 1963 based on the life of Jake LaMotta and assigned rights to UA/MGM who made the movie Raging Bull. Under the old renewal system, renewal rights went to Petrella’s heir, Paula Petrella, who renewed the copyright in 1991 in a fashion that (seemingly) eliminates the prior license. In 1998 she informed MGM that its continued exploitation of the Raging Bull movie violated her copyright. Finally, in 2009, she did sue – alleging copyright infringement.

Copyright infringement has a three-year statute of limitations indicating that “No civil action shall be maintained under the [Act] unless it is commenced within three years after the claim accrued.” 17 U.S.C. §507(b). However, as in patent law, copyright follows a “separate-accrual rule” that sees each successive violation of a copyright as a new infringing act with its own statute of limitations. Thus, under the statute of limitations, MGM could be liable for its post-2006 actions such as copying and distributing the work.

In the lawsuit, MGM separately asserted the equitable defense of laches based upon the long and unreasonable delay in bringing suit.

In a 6-3 decision, the Supreme Court has sided with Petrella – finding that the statute of limitations does all the work on the question of liability – leaving latches only to potentially shape the remedy.

Laches, we hold, cannot be invoked to preclude adjudication of a claim for damages brought within the three-year window. As to equitable relief, in extraordinary circumstances, laches may bar at the very threshold the particular relief requested by the plaintiff. And a plaintiff’s delay can always be brought to bear at the remedial stage.

The court was clear that equitable estoppel may also apply, but that generally requires some affirmative act by the rights-holder (that leads to

In a footnote, the court draws some parallels with the six-year statute of limitations for collecting back-damages in patent law. 35 U.S.C. § 286. In a 1992 en banc decision, the Federal Circuit held that laches can be an additional bar to collecting back-damages even within the six-year limit. A. C. Aukerman Co. v. R. L. Chaides Constr. Co., 960 F. 2d 1020 (Fed. Cir. 1992) (en banc). Noting that decision, the Supreme Court here only remarked that “We have not had occasion to review the Federal Circuit’s position.”

One interesting aspect of the decision was the unusual split between the majority and dissent. Justice Ginsburg penned the majority opinion that was joined by Justices Scalia, Thomas, Alito, Sotomayor, and Kagen.  Justice Breyer dissented and was joined by Chief Justice Roberts and Justice Kennedy.

Court to Employer: No Paper, No Assignment

Patent, , , ,

By Dennis Crouch

Peregrine Semiconductor v. RF Micro Devices (S.D. Cal. 2014) (peregrine decision)

Interesting decision here involving patent ownership. Peregrine sued RFMD for infringement of several of its patents. However, during the course of the lawsuit the parties figures out that a former Peregrine worker – Robert Benton – should have been a named inventor on the asserted patents. Rather than siding with his former bosses, Benton instead assigned his rights to the defendant RFMD. The question in the case then is whether that assignment is proper or did the patentee already hold equitable title due to Benton’s employment.

Ownership of patent rights generally begin with the notion that the inventor begins establishing patent rights at the moment of conception. “The general rule is that an individual owns the patent rights to the subject matter of which he is an inventor, even though he conceived it or reduced it to practice in the course of his employment.” Banks v. Unisys Corp., 228 F.3d 1357 (Fed.Cir.2000). At the point of conception, the right is inchoate since no patent application has been filed or patent issued. However, courts typically allow assignment of that inchoate right through a written document. That rule could be seen in contrast to the traditional rule regarding other inchoate rights, such as a possibility-of-reverter, that could not be transferred inter vivos. In the 2011 Stanford v. Roche decision, the Supreme Court reiterated the basic law of inventor’s rights and the proposition that – absent an express assignment – an employer might not own its employees inventions even if those were accomplished during the course of the employment. “In most circumstances, an inventor must expressly grant his rights in an invention to his employer if the employer is to obtain those rights.” Bd. of Trustees of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 131 S.Ct. 2188 (2011) (citing United States v. Dubilier Condenser Corp., 289 U.S. 178 (1933)).

Peregrine made two arguments as to why such a transfer occurred and that it held at least equitable title to Benton’s patent rights: (1) a contractual promise to assign; and (2) the hired to invent doctrine.

No Paper à No Express Assignment: Courts have long specifically enforced contracts to assign patent rights – requiring a contracting inventor to follow through with that promise as opposed to requiring only the ordinary contract remedy of expectation damages. Peregrine’s problem is that it has no written evidence of such a contract formation. Peregrine’s business practice is to require all employees to sign an “Employment and Assignment agreement,” but Benton testified that he had no recollection of executing any such written employment agreement or assignment during his time working at Peregrine. Here, the court seemed to be swayed as well by the Patent Act’s statute of frauds that require any assignment of patent rights to be in writing.

A patent owner who seeks to assign his interest in the patent must do so in writing. 35 U.S.C. § 261; Sky Techs. LLC v. SAP AG, 576 F.3d 1374 (Fed.Cir.2009) (citing Akazawa v. Link New Tech. Int’l, Inc., 520 F.3d 1354 (Fed.Cir.2008)). Peregrine admits that it does not have any documentation of an Employment and Assignment agreement or Policy Manual signed by Benton.

Although I suspect that the court made the right decision here, the statute-of-frauds theory has some failings. First, the statute requires that assignments be in writing, but does not expressly require that contracts-promising-assignment be in writing. Further, courts can still enforce a “lost grant” despite the statute of frauds so long as there is sufficient evidence to prove that the grant existed. Here, however, that evidence appeared to be lacking.

What Exactly Was he Hired to Invent?: Peregrine also argued that Benton had a duty to assign his patent rights based upon the (Federal?) common law “hired to invent” doctrine as well as the California Labor Code § 2860. In California, the statutory provisions of § 2860 are seen as coextensive with the common law doctrine and applies when an employee is “hired to invent something or solve a particular problem.” The doctrine focuses on the specificity of the task assigned to the employee. As Don Chisum writes, “[t]he primary factor in finding an employment-to-invent is the specificity of the task assigned to the employee.” Here, the court cited a 1960s California decision distinguishing between work “narrowly directed by the employer towards the resolution of a specific problem” and work that is “generalized within a field.” With only the former creating an obligation to assign. See Banner Metals, Inc. v. Lockwood, 178 Cal.App.2d 643 (Cal.Ct.App.1960).

In this case the court found that Benton’s work appeared to be wholly within the field of semiconductor development, but generalized within that field. Importantly, the court noted that Benton worked on a variety of products during his employment and also spent time on non-inventing activities such as marketing and customer support. As such, the court ruled that Benton is unlikely to be bound by the hired-to-invent doctrine.

Hired-to-invent cases will always be somewhat squirrely since they are ordinarily raised only as a backstop when the employer’s written agreement failed and, as such, there is not likely to be written evidence particularly defining the reason why an individual was hired. This case fits that description.

Preliminary Injunction: Now, this case is only at the preliminary injunction stage. Peregrine had motioned for a preliminary injunction and that injunction was denied based upon the likelihood that Peregrine will not be able to prove its ownership. The denial also offers Peregrine the opportunity to immediately appeal this case to the Federal Circuit.

Supreme Court Reinstates $6.6 Million Attorney Fee Award

Patent, Supreme Court,

Kobe Properties v. Checkpoint Systems (Supreme Court 2014)

Today the Supreme Court issued a GVR decision in this case:

The petition for a writ of certiorari is granted. The judgment is vacated, and the case is remanded to the United States Court of Appeals for the Federal Circuit for further consideration in light of Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U. S. ___ (2014) and Highmark Inc. v. Allcare Health Management System, Inc., 572 U. S. ___ (2014).

In that case, a jury found the asserted patent infringed, invalid, and unenforceable and the district court judge had awarded $6.6 million in attorney fees to the defendants. On appeal, however, the Federal Circuit reversed based upon a finding that “the requirements of § 285 were not met” because the patentee’s lawsuit was not ‘objectively baseless.’ [See Rantanen, Failing the Objectively Baseless Standard]. In Octane Fitness, however, the Supreme Court recently held that the objectively baseless standard is improper and too strict.

Following the Supreme Court GVR, the fee award is now reinstated. On remand, the panel will likely be asked now to determine whether the district court’s findings were an abuse of discretion – which they likely were not.

Fee Shifting: First the Supreme Court, Now Congress

Attorney Fees, Fee Shifting, Patent, Supreme Court,

By Dennis Crouch

In Octane Fitness, the Supreme Court gave discretion to district courts in determining whether to award attorney fees to the prevailing party. The court also lowered the bar for such a finding – both by removing the somewhat rigid limitations that had been imposed by the Federal Circuit and by rejecting the notion that clear and convincing evidence is a prerequisite foundation for such an award.

However, the decision will likely be seen as making an incremental change rather than being a watershed moment. The law remains that attorney fees should only be awarded in exceptional cases that involve misconduct or extreme behavior. Our long tradition in the US had avoided attorney fees except in rare cases and I do not see this court changing that tradition in any dramatic way. The point here is that even the new lower standards are a far cry from the presumptive award of attorney fees as have been proposed in Congress.

Enter Congress: Earlier this session, the House of Representatives passed H.R. 3309 (the Innovation Act) with broad bipartisan support. The bill includes a fee shifting provision that creates a presumption that fees will be awarded to the prevailing party unless the district court finds that the losing party’s position was “reasonably justified in law and fact or that special circumstances make an award unjust.” A parallel Senate proposal steps back slightly from the House version and would require a finding that the non-prevailing party’s conduct or position was objectively unreasonable.

The Senate version is intended to be a middle ground between the current law and what was passed in the House. As far as I know, Senator Leahy has not yet come-out in favor of either proposal but has stated his preference that discretion in the decision be given to district court in the decisionmaking process. One way to achieve Senator Leahy’s goals could be a simple modification of Section 285 – deleting “exceptional case” and adding “its discretion” as follows: “The court in exceptional cases
its discretion may award reasonable attorney fees to the prevailing party.”

The legislative proposals also have the creative element of helping ensure that the rule cannot be skirted by underfunding the patent enforcement entity. Rather, the proposal would allow for limited veil piercing in order to collect any attorney fees owed from investors and others with interests in the litigation.

One bottom line is that the proposed statutory changes would still push the law well beyond its (newly) current state. As such, I suspect that the push to include these provisions as key elements of patent reform will continue.

Supreme Court Takes-On Question of Joint Infringement

Patent, Supreme Court, , , , ,

By Dennis Crouch

[Transcript of Oral Arguments]

The Supreme Court heard oral arguments today in Limelight Networks Inc. v. Akamai Technologies, Inc. Limelight is best seen as part of a series of cases considering what it means to be an infringer. In particular, the court has struggled to determine what to do when one party performs a portion of a patented invention and then another party performs the remaining portion. In this setup, the parties are able to collectively benefit from the invention without being labelled infringers under the Federal Circuit’s strict single-entity-infringer rule. See BMC v. Paymentech (Fed. Cir. 2007). The BMC line of cases creates an avenue for avoiding infringement by properly dividing the corporate structure. That pathway is further solidified by our current age of distributed computing that allows for servers and systems to closely interoperate even though controlled by different parties. In this case, the invention is focused on a mechanism for quickly delivering video streams to lots of people over the internet by distributing servers. The patent spells out the entire method and system for accomplishing this result, but the defendant here each only practice a portion of the whole invention but expressly encourages its customers to perform the rest. In an admittedly biased way, the patentee’s attorney Seth Waxman explained the setup as follows:

Mr. Waxman: This case is not complicated. This case involves a four­ or five­step method in which Limelight performs all but one or two of the steps and tells its customers, if you want to use our service, you have to perform the other step. Here’s exactly how you do it. We have somebody 24 hours a day, seven days a week assigned to you to help make sure you do it the right way.

In Limelight, the Federal Circuit (sitting en banc) offered one outlet to limit avenues-of-infringement. Here, the appellate court held that an entity can be liable for inducing infringement if that party induces performance of the entire invention, even if no single party performed all of the elements. That holding is a shift in thinking – prior case law required evidence of underlying single-actor direct infringement as a pre-requisite to an inducement finding. The statute for inducement indicates simply that “whoever actively induces infringement of a patent shall be liable as an infringer.” 35 U.S.C. § 271(b). An interesting element of this case is that the Limelight originally indicated that it would reconsider the BMC doctrine regarding direct infringement. However, the en banc panel decided to limit its analysis only to the inducement theory. If Limelight is successful on appeal, the Federal Circuit may then have an opportunity to reconsider the single-actor rule for direct infringement under Section 271(a). More particularly, the Federal Circuit has applied a fairly strict agency doctrine rule, but other areas of law have allowed for a more liberal agency doctrine that would potentially capture the type of joint infringement alleged in this case.

The question presented is:

Whether the Federal Circuit erred in holding that a defendant may be held liable for inducing patent infringement under 35 U.S.C. § 271(b) even though no one has committed direct infringement under Section 271(a).

Aaron Panner argued on behalf of the petitioner Limelight (the accused infringer) and shared time with Assistant Solicitor Ginger Anders who filed a brief in support of the petitioner. Seth Waxman argued on behalf of the respondent-patentee Akamai. In the case, the US government took the middle-ground position that the patentee has the best policy argument but that the statute clearly supports reversal.

Focusing first on the policy issues, the court asked whether Limelight is asking for a rule that allows patentees to skirt infringement simply by altering its corporate structure:

CHIEF JUSTICE ROBERTS: Your position makes it pretty easy to ­­ to get around patent protection, doesn’t it? All you’ve got to do is find one step in the process and essentially outsource it or make it attractive for someone else to perform that particular step and you’ve essentially invalidated the patent.

MR. PANNER: I don’t think so, Your Honor. In the two following senses.

First of all, empirically speaking, there have not been very many cases in which this has proven to be a problem. It has been a long understood principle of patent claim drafting that method claims should be drafted from the point of view of a potential infringer so that all of the steps can be carried out by that potential infringer. And prospectively, certainly ­­ and given that this rule has been clearly articulated by the Federal Circuit now for many years, or at least several years, prospectively, the patent applicant has every incentive to draft claims from the point of view of a single potential infringer.

This ­­ the claim that’s at issue here, there’s no dispute. It could have been written in such a way that the steps would have been carried out by a single infringer and, indeed, that may have been the intent. . . .

JUSTICE SCALIA: I’m just arguing about whether the safe haven you have given us for patentees really exists. It doesn’t seem to me you can avoid the problem by simply requiring all the steps to be conducted by one person.

MR. PANNER: Well, Your Honor, in ­­ in my experience in ­­ in terms of dealing with patents that are written to technologies that do involve interaction, for example, between cellular phones and networks and content providers who are sending content to a phone, for example, it is very common to draft claims from the point of view of someone who’s participating in that process so that all of the steps will be carried out in that ­­ by that person. . . .

JUSTICE KAGAN: [N]otwithstanding what you said about 10 of 11 judges, it was clear that the judges thought that there was a real problem here in terms of an end run, and that they looked at this and said, well we could do it under 271(a) or we could do it under 271(b), and 271(b) seems a lot more natural and better for various reasons. But your sense in reading the opinion that all those judges who did it under 271(b) are just going to go back and do the exact same thing under 271(a).

Panner’s argument here does not seem like one that the judges would truly support – that the patentee wins or loses here based upon whether it correctly followed the proper claim-drafting trick.

Responding to the same issues, the US Government lawyer (Anders) recognized the “end run” problem as legitimate.

MS. ANDERS: I think the Federal Circuit was understandably concerned about allowing inducers to perform some stops of a process themselves to escape liability, but this Court has twice held in both Microsoft v. AT&T and before that Deep South v. Laitram that judicial concerns about gaps in 271’s coverage should not drive the Court’s interpretation of that provision. That is because any time that you close a gap in 271, expanding patent rights, you are invariably implicating competing concerns and it’s for Congress to resolve those concerns.

When his turn to speak, Waxman hit home the policy concerns:

MR. WAXMAN: Please make no mistake about what Limelight is asking you to do. Under Limelight’s theory, two or more people can divide up and perform the steps of any method claim, however drafted, without liability. . . . Let’s assume that there is disclosure and patenting of a cure for cancer or a novel treatment for cancer that involves, as they often do, the administration of different drugs sequentially. And two parties get together and say, I’ll administer Drug 1, you administer Drug 2, and we can take advantage of this marvelous patented process without paying anything ­­ giving anything whatsoever to the company that spent a billion dollars and 25 years developing.

Several of the Justices rightly recognized the potential notice problems of joint liability in a strict liability scenario. However, those fears are greatly reduced in the inducement context because liability requires knowledge that the acts being induced would constitute infringement. Waxman attempted to also allay those fears by referencing a common law knowledge requirement implied into joint-concert liability.

When the Federal Circuit decided this case, it appeared to be a new rule regarding inducement liability. In his appealing way, Waxman argued that it is not really new but rather it is a return to the common law notions that were disrupted by the Federal Circuit’s unnatural limitations on 271(a) joint liability that began in 2008.

JUSTICE SOTOMAYOR: [Is] this is a new rule by the Federal Circuit?

MR. WAXMAN: The answer is no. What is new is the 2008 ­­ beginning in 2008 jurisprudence in the Federal Circuit on 271(a) that unnaturally limited the common law attribution rules.

Very little time was spent on statutory construction – what is meant by the term “infringement” in 271(b)? Waxman does lay out his textual argument that infringement in 271(b) is not limited to “direct infringement under 271(a).” but rather offers the following notion:

MR. WAXMAN: A patentholder has the exclusive right to make, 15 sell, use, or offer to sell his invention during the term of the patent. That’s what sets out the metes and bounds of the property right. And any encroachment on that property right is an infringement. . . .

JUSTICE GINSBURG: An infringement without an infringer?

MR. WAXMAN: You can certainly have infringement without an actionable infringer, absolutely. Under anybody’s rule you can do that. The whole debate we have with the other side on the (a) question is how ­­ what attribution rules do or don’t apply. . . . .

JUSTICE SCALIA: What does ­­ what does (b) require? Does it require inducing an infringement or inducing an infringer?

MR. WAXMAN: Inducing an infringement. And I’ll give you a concrete example. Let’s say that there’s a five­step patented method that I know about, and I convince ­ I induce Mr. Panner to do steps 1, 2, and 3 and Ms. Anders to do steps 4 and 5. If I’m doing that because I know about the patent and I want to take advantage of their otherwise innocent performance collectively of the steps, at common law and at patent law, it was uncontroversial that I was liable. I was responsible.

Overall the oral arguments here are difficult to follow and thus the outcome is difficult to predict. The justices are rightly concerned that the their decision on 271(b) is dependent upon the meaning of joint infringement 271(a), but that may only be decided on remand.

JUSTICE ALITO: It’s ­­ it’s a good reason to think that the question before us really has no significance that I can think of unless the ­­ the Court of Appeals ­­ unless the Federal Circuit is right about [the limited scope of 271](a). . . . So you’re asking us to decide a question ­­ to assume the answer to the question on (a) and then decide a question on (b) that is of no value ­­ no significant ­­ maybe I don’t understand some other ­­ I don’t see some other situations where it would apply, and no significance unless the ruling on (a) stands, unless Muniauction is correct?

Waxman expressly suggested that the court go ahead and rule on the 271(a) issue (as it had suggested in a cross petition for certiorari) or simply remand the case to the Federal Circuit to decide the underlying 271(a) issue.