Patent Law Blog (Patently-O)

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

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

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

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

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

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

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

Documents:

• CAFC Opinion
• PO: PTO Set To Issue Reexamination Certificate
• PO: Original Eolas CAFC Decision 271(f)

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

PVPA Not Infringed When Seller Lacked Knowledge

Rewritten Aug 1:

Syngenta Seeds v. Delta Cotton (Fed. Cir. 2006).

In a case involving a variety of soft winter wheat, the CAFC has effectively reversed a jury's finding of infringement and damages under Section 2567 of the Plant Variety Protection Act (PVPA) because the accused seed seller did not have proven knowledge that the seeds were protected. 

Here, Delta was reselling seeds that had been provided by local farmers.  Delta's apparent "don't ask don't tell" policy with regard to the variety of seed enabled it to escape liability under the PVPA. 

Lanham Act: Syngenta also accused Delta of "reverse passing off" because Delta was selling the Syngenta variety of seed under the Delta Cotton name.  Reverse passing off is generally thought of as "misrepresenting someone else's goods or services as [your] own." Dastar.

The CAFC agreed with Syngenta that reverse passing off has no scienter requirement and thus proof of Delta's knowledge would not be required.  However, Syngenta did not show proof that the misidentification of goods caused any harms to Syngenta's business or mark.

Reversed

Patent Reform: Issa's Litigation Pilot Gains Support (HR 5418)

Substantive patent reform legislation is dead for the year.  The one Bill that has some traction is Representative Darrell Issa's patent litigation pilot program.  The Bill (HR5418) would cost only $5m per year and would change the random case assignments in district courts so that judges who opt in would be more likely to hear patent cases. The money pays for a law clerk with technical expertise.

On July 26, 2006, the House IP subcommittee markup, members approved the Bill, although more amendments are expected to address concerns that the focus on particular "patent" judges could increase the opportunity for forum shopping.

Rep Issa is the named inventor on dozens of patents and has personally been involved in patent litigation in his hometown of San Diego.

There is no companion Bill in the Senate yet, although Senator Hatch is said to be "working on it."

One motivation for the legislation is to try to reduce the CAFC reversal rate. Can someone do a study to see if Judges that handle more patent cases are less like to be overturned at the CAFC? You probably have a year to complete the study, because, even with support of the subcommittee, passage this year is still a long-shot.

Documents:

• Matt Buchanan's Prior Discussion of the Bill
• One-Page Summary of the Bill
• Text of the Bill
• Patent Hawk's Discussion of the Bill

Settlement Creates Unchallengable Claim Construction

Louisville Bedding Co v. Pillowtex (Fed. Cir. 2006).

Louisville Bedding owns a patent on a mattress pad cover that uses a special skirt material.  In its original suit against Pillowtex, Louisville got a negative claim construction and infringement opinion from the district court and the parties quickly settled. Shortly after settling, Pillowtex dissolved into bankruptcy.

After the earlier decision was used to collaterally estop Louisville in a later suit against another party, the patent holder filed a Rule 60(b)(6) motion to reopen (or vacate) the original decision. -- The motion was denied, first by the district court and then affirmed on appeal.

The CAFC did not discuss whether the application of collateral estoppel of claim construction was correct.  The appellate panel did, however, uphold the longstanding tradition of finality of judgment.

As the Supreme Court has recognized, "[p]ublic policy dictates that there be an end of litigation; that those who have contested an issue shall be bound by the result of the contest, and that matters once tried shall be considered forever settled as between the parties." Baldwin v. Traveling Men’s Ass’n, 283 U.S. 522, 525 (1931). This policy concern is even stronger when a case is ended by the deliberate choice of the parties.

Louisville Bedding argued that the changed circumstances of the Pillowtex bankruptcy opened the door to revisit the case. The CAFC disagreed.

Typically, a district court may grant relief under Rule 60(b)(6) only for "exceptional or extraordinary circumstances.” Louisville has not made such a showing. Because businesses fail every day, the failure of Pillowtex in this case, even though it appeared to be highly commercially successful in 1998, is not an "exceptional or extraordinary circumstance." To say the least, Louisville took a calculated risk that did not turn out the way that it expected. Nor can we say that the equities in this case particularly favor Louisville and its fateful business decision. In the Pillowtex case, Louisville was faced with a summary judgment of noninfringement and an unfavorable claim construction with respect to the ’322 patent. Its position looked bleak at that time. There was no certainty that Louisville could have had that result changed in the district court or on appeal if it did not enter into the settlement agreement. Thus, it was greatly to Louisville’s benefit to settle the case under the terms that it did.

Denial of R.60 motion affirmed.

Book Review: Anonymous Lawyer

Anonymous Lawyer
By Jeremy Blachman
Released July 25, 2006.

$15.75 from Amazon (37% off).

I e-mailed back-and-forth with the author Jeremy Blachman back in early 2004 -- before I started Patently-O.  He was at Harvard Law School and gave me lots of great tips and helped me get my feet wet in the blog world.  I finally met Jeremy in person in 2005, several months after the New York Times revealed that the prototypical BigLaw partner embodied by the Anonymous Lawyer Blog is, in fact, Mr. Blachman. Rather than joining Reed Smith as a new associate after graduation, Jeremy got a book deal to transform his blog persona into a full length novel.  He has done an excellent job!

The book is a breeze to read (advance copy) and it is always fun to trash corporate attorneys.  It's cheap too -- $15. Hopefully most of you will chuckle to yourself as you read the book -- happy that your firm is not this bad. . .

On-line Resources:

• Buy the Book;
• The Anonymous Lawyer Blog;
• The Anonymous Law Firm (the podcasts are great);
• Jeremy Blachman's (Non-anonymous) Blog.

Supreme Court: Challenging a Patent During the License Term

MedImmune v. Genentech (Supreme Court 2006).

In MedImmune, the Supreme Court will answer the question of whether a licensee in good standing can challenge the validity of the patents it has licensed.  A hidden issue within this case is whether a licensee has the freedom to contract-away its right to challenge the validity of the patents during the license. 

In Lear v. Adkins, The Supreme Court gave the boot to the doctrine of “licensee estoppel” and allowed a licensee to challenge the validity of a licensed patent after termination of the license. Based on Lear, license terms that bar a licensee from later challenging the patent’s validity are (usually) unenforceable. Those decisions, however, are based on cases arising after termination of a license agreement. 

Danger for Cross-License Agreements: The reality is that many license agreements are based on the desire for “patent peace” between the parties.  Often two companies will cross-license their patents and forgo any hopes of a cash payout in favor of the certainty afforded by the agreement.  Those companies are willing and ready to give-up their rights to challenge the patents in district court (during the license term).  If MedImmune has its way, however, those license agreements would actually open the door to litigation rather than achieve the hoped security. 

The potential inability to fully settle lawsuits as they arise also has interesting implications for the sale of patent rights.  Any purchase review (due diligence) will need to look much more closely at ongoing license agreements associated with the patent to determine the extent that the license gives the licensee a right to sue.

Briefing at the Supreme Court will continue this summer to prepare for oral arguments in the October 2006 term.

Links:

• Discussion of the Supreme Court briefs;
• CAFC Decision in MedImmune v. Genentech;
• CAFC Decision in MedImmune v. Centocor;
• MedImmune Petition Granted
• Lear v. Adkins;
• Professor Miller’s comments;
• Supreme Court on the March.

Documents:

• Merits Stage:
  • Party Briefs:
    • MedImmune Brief
  • Amici in Support of Petitioner
    • Solicitor General
    • Law Professors (Dratler Oddi)
    • Generic Pharma Assn
    • Medtronic
    • NRDC
  • Amici in Support of Neither Party
    • Licensing Executives Society
• Petitions Stage
  • Genentech:
    • MedImmune’s Genentech Petition (6509 KB)
    • Genentech's opposition to certiori
    • MedImmune's Genetech Reply
  • Centocor:
    • MedImmune’s Centocor Petition
    • Centocor’s opposition to certiori
    • MedImmune’s Centocor reply

Book Review: Innovation and its Discontents

Review by Professor Thomas G. Field, Jr.

Innovation and its Discontents: How Our Broken Patent System is Endangering Innovation and Progress, and What to Do About It (2004).
by Adam Jaffe and Josh Lerner

The 2004 book, Innovation and Its Discontents, has received too much attention to ignore. There, and more recently in the Wall Street Journal and elsewhere, Professors Jaffee and Lerner maintain that the patent system is broken, endangering innovation and progress. To their credit, they acknowledge that the alarm has been sounded for centuries. But such ground was well covered in Fritz Machlup's agnostic study, An Economic Review of the Patent System, published by the U.S. Senate in 1958. Also, to their credit, they criticize, at 158, Nobel Laureates for exceeding the scope of their expertise. Yet, their often-rambling book suffers from the same fault.

Ironically, an introductory section beginning at 18 is entitled "patent medicine." As noted by Wikipedia, for example, "One memorable group of patent medicines — liniments that allegedly contained snake oil, supposedly a universal panacea — made snake oil salesman a lasting synonym for a charlatan." The authors aren't charlatans, but it is difficult for anyone who knows much about patents to take Discontents seriously.

Jaffee and Lerner put a fresh face on prophesies of doom by linking them to two recent process changes in the patent system — a shift from tax to user-fee funding for the PTO and the creation of the U.S. Court of Appeals for the Federal Circuit. Although they argue that patent policy is too important to leave to patent lawyers, both problems and proposed solutions seem more related to process than policy.

The authors could be taken more seriously if they didn't persist in flagging a few patents as evidence that, according to their subtitle, "our patent system is broken, endangering innovation and progress." Three mentioned in their book and elsewhere are for sideways swinging, exercising cats with laser pointers, and wristwatches for dogs. They might not resort to such examples, however, if they appreciated that the first is unenforceable, the second could not be enforced except possibly under § 271(b), and the third if enforced would seem unlikely to endanger much of anything.

By citing such patents, Jaffee and Lerner are hardly alone in subjecting the PTO to ridicule, but I fail to see how altered funding of the PTO could have increased the frequency of such patents. Nor do I see how their proposals would reduce it. Although they advocate, for example, earlier publication and expanded opposition, who other than the humorless would oppose? And how much time or money might such humorless individuals be willing to spend?

The relationship between the shift in PTO funding, on the one hand, and the issuance of patents for silly or trivial inventions, on the other, is remote. Indeed, I can think of nothing more likely to deter applications to protect inventions of little or no economic value than the substantial fee increases that followed the shift.

It is unlikely that those who got the swinging and cat-exercising patents harbored delusions about their economic value. Jaffee and Lerner, with most other patent system critics, however, seem not to appreciate why applicants often find such assessments difficult. As I've argued repeatedly, applicants unaware of the market value of inventions have far less incentive to scour the literature for potentially fatal art than infringers who subsequently become aware of the stakes. Anyone who understands that should not be surprised that patents are sometimes invalidated. Nor should they protest overmuch that infringers intending to do so must meet a heightened burden of proof. Moreover, they should not be sanguine about the prospects for early opposition.

Turning to Jaffee and Lerner's claim that the Federal Circuit was a bad idea, I’m even more skeptical. Prior to 1982, only two courts had appellate jurisdiction to review PTO decisions directly — the D.C. Circuit and the CCPA. The 1966 report of an expert commission established by President Johnson faulted the latter as too quick to favor applicants. Fearing erosion of a strong presumption of validity, the Johnson Commission recommended that the CCPA be more deferential. It also recommended that the Office be allowed to appeal from the CCPA to the D.C. Circuit. Because that circuit was unlikely to see infringement appeals, I regard the post-1982 situation as an improvement over what was proposed.

If the Federal Circuit, reviewing directly, adopts rules unduly favoring applicants, the consequences must be faced in collateral review. The substantial price paid for that possibility, apparently unappreciated at the time — and perhaps even now, was the dearth of precedents bearing on the many issues that arise only in the latter context.

Beyond that, some things for which Jaffee and Lerner fault the Federal Circuit, e.g., the strength of the validity presumption, preceded its creation. Others, e.g., the role of juries in patent litigation, are best addressed by Congress or by Supreme Court justices who have made a hash of fact-law distinctions in patent law.

If Jaffee and Lerner, with many others, fear that the fox has been set to watch the hen house, they need to re-evaluate their assumptions about the Federal Circuit and the patent bar. Even if the court were inclined to be the handmaiden of that bar, how would it deal with the many internal conflicts manifested by the diversity of amici in the eBay case? How would it deal with the fact that, for many attorneys, patents are both sword and shield?

On balance I am anything but contented with Innovation and its Discontents. Those who share my belief that two relative newcomers have little grasp of key problems, much less meaningful solutions, should not stand silent.

Note: This review was originally published in PatentCafe's IPFrontLine. Republished with permission.

Via bLaugh and Denise Howell.

Continuation Change Timeline / Upcoming Conference

The gossip tree says that the PTO received over 500 comments to its proposed changes to continuation practice.  Most of these comments are publicly available here.  The now independently confirmed rumor is that the final rules will be modified and published in late November or early December of this year with an implementation date of January 2007.  It is likely that a number of risk-averse companies will be filing continuations like-mad this fall on the recommendation of their CYA attorneys.

As many of you know, the proposed rules include controversial restrictions on continuation practice that would allow only one continuation or RCE as a right.  Other second or subsequent continuations could be filed with a showing of cause. Read more about the proposed continuation changes here.

Cecil Quillen, who first addressed this issue back in 2001, provided his interesting comments to the proposal:

Rather than attempting to limit the number of continuing application filings by creating an additional procedure. . . the PTO should instead seek legislation abolishing all forms of continuing applications (continuations, CIPs, RCEs, etc.), except for divisional applications filed pursuant to a Section 121 Requirement for Restriction.

For those of you in Chicago, John Doll (the Commissioner of Patents), Douglas Lichtman (UChicago), and others will be discussing this issue as well as other Internet related issues at an upcoming seminar titled “IP Law and the Internet” at Northwestern Law School on July 27, 2006. Link. Contact Evan Brown or Kevin Thompson for more information on the conference.

How to Manage Outside Counsel (A patent).

First there was the patented mock jury, now we have a patented method and apparatus for managing outside counsel.  U.S. Patent No. 7,076,439, titled “Method and Apparatus for Managing Multiple Projects,” is assigned to LSI Logic. Claim 8 reads as follows:

8. An apparatus comprising:

a memory configured to store (i) a membership information database, (ii) a global events database, (iii) a calendar database and (iv) an events engine database; and

a database management system configured to:

(A) assign from a membership information database (i) an in-house council and (ii) an outside council to a project based on a first input from an individual;

(B) receive a document having an initial date;

(C) store in a global event database (i) said document and (ii) said initial date based on a second input from said individual;

(D) calculate a due date based on both (i) a type of said document and (ii) said initial date;

(E) store in a calendar database said due date;

(F) select said outside council to perform a first task for said project;

(G) receive from an events engine database as selected by said in-house council an authorization response for said outside council to perform said first task;

(H) send automatically to said outside council both (i) a work authorization defined by said authorization response and (ii) said document when an authorization event occurs;

(I) receive from said events engine database as selected by said in-house council a first conditional response for said first task, wherein said first conditional response is (i) set when said authorization event occurs and (ii) performed if set when a first reminder event occurs;

(J) calculate a first reminder date for said first reminder event;

(K) store in said calendar database said first reminder date; and

(L) send automatically on said first reminder date to said outside council a first reminder email to complete said first task if said first conditional response is set, wherein a supervisor does not receive said first reminder email;

(M) receive from said events engine database as selected by said in-house council a second conditional response for said first task, wherein said second conditional response is (i) set when said first reminder event occurs and (ii) performed if set when a second reminder event occurs;

(N) calculate a second reminder date for said second reminder event; and

(O) send automatically on said second reminder date to both (i) said outside council and (ii) said supervisor, a second reminder email to complete said first task if said second conditional response is set.

The prosecution history includes an appeal brief filed by applicant that resulted in a new rejection based on a new search . . .

Interference: Late Claim Loses the Game

California v. Iowa (Fed. Cir. 2006).

The first annual bio-bowl was recently played-out before a small crowd and three officials in the heart of Washington, D.C.

Cal and Iowa battled through an interference proceeding over rights to a molecule designed to desensitize a person to an allergen.

Iowa, the junior party, received its patent first.  Within months, Cal amended its pending claims and requested an interference.  Unfortunately for Cal, the PTO had some problems with its new claims and Cal spent many more months fighting over their patentability.  Eventually, Cal canceled its claims and added a new one that properly set-up the interference.

For an interference, new claims must be added within one year of the other patent's issue date. 35 USC 135(b)(1).  Even though its newest claim was filed more than one year after Iowa's patent issued, Cal argued that its earlier amendments and requests for interference should satisfy the rule.  Both the BPAI and CAFC disagreed:

Because California’s proposed interpretation of section 135(b)(1) contravenes this court’s precedent, the plain meaning of the statute, and the policy underlying that section, this court rejects those contentions.

Cal could have relied on the earlier claims if they had not differed in any materially limitation from the new claim -- unfortunately for the brown-furballs, the claim was materially different.

The conclusion: tough luck for you if you write bad claims in anticipation of an interference.

Iowa Wins.

Foreign Soverign Immunity Waived By Patent License Negotiations

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

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

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

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

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

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

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

Affirmed and dismissed.

Read the case: Link

Delay alone cannot constitute intentional concealment

Flex-Rest v. Steelcase (Fed. Cir. 2006).

Flex-Rest holds at least two patents on negative-tilt computer keyboards and sued for infringement.  Steelcase, the defendant, had an earlier conception date, but Flex-Rest argued that 102(g) should not apply because Steelcase had concealed the invention (either intentionally or unreasonably).

Here, there was a seven month delay from Steelcase's reduction to practice and public release of its product (timed with the filing of its own patent application).

Intentional Concealment: As it turns out, a seven month delay alone does not constitute intentional suppression or concealment:

"Intentional suppression, however, requires more than the passage of time. It requires evidence that the inventor intentionally delayed filing in order to prolong the period during which the invention is maintained in secret." quoting Fujikawa.

The record demonstrates that after reduction to practice, Steelcase moved almost immediately towards both filing a patent application and commercially disclosing the KBS device at a trade show, actions which indicate an intent to make a public disclosure.

The CAFC found that keeping the device secret while preparing a patent application and/or preparing for a trade show release "is not, by itself, indicative of intentional suppression or concealment."

Unreasonable Delay: The failure to bring forth an invention, either publicly or in a patent application within a reasonable amount of time will support an inference of suppression or concealment.  "There is no particular length of delay that is per se unreasonable." Here, the CAFC agreed that the seven month delay was not unreasonable:

After reduction to practice, Steelcase resolved design issues and spent $775,000 on tooling for the parts to the KBS device. The lead times for creating the tooling varied from four weeks to approximately six months. Therefore, it does not appear that Steelcase could have brought the KBS device to market much sooner than the trade show unveiling in June 1991.

At the same time, Steelcase’s patent counsel began drafting a patent application for the KBS device, submitting a first draft to Steelcase in March 1991. The draft was reviewed by the four named inventors and filed in May 1991. No evidence indicated that this amount of time was unreasonably long.

In the process, the Court also shot-down the urban myth of a court sanctioned three-month patent prep deadline derived from the old Shindelar case.

Flex-Rest’s argument that Shindelar identifies a reasonable amount of time for drafting when the court stated that “a period of approximately three months could possibly be excused” takes that quote out of context. . . . What constitutes a reasonable time for drafting a patent application will vary with the technology and the particular set of facts involved in each case.

Noonan's Corner Office: IDS Rule Changes

By Kevin Noonan.

The U.S. Patent and Trademark Office, having encountered open hostility to some recent proposals, is again trying to address the issues of patent pendency and quality by proposing new rules regarding Information Disclosure Statements.

An Information Disclosure Statement is a document through which an applicant can fulfill (in part) the duty of disclosure under Rule 56 of Patent Office regulations. Using an IDS, an applicant can identify and submit copies of prior art references, including U.S. patents, U.S. and foreign patent applications (including international applications) and scientific references, as well as other documents such as product manuals, advertisements, and any other printed publication. Although there are no separate requirements that an IDS must be filed, the Office does impose a fee for filing an IDS after the first action on the merits, and will not consider an IDS filed after a final rejection or notice of allowance without good cause. There is currently no limit on the number of documents that can be submitted with an IDS.

The new proposals do away with the fees associated with "late" filing of an IDS. However, the proposal will permit an applicant to submit no more than 20 references without explanation. If more than 20 documents are submitted, the applicant will be subject to "increasingly more stringent" requirements to explain the significance of the documents. These requirements will also apply to applicants who submit "very long" documents (a term that is not very precisely defined).

The latest proposals seek once again to shift the burden for examination from the Examiner to the applicant, and to require increased assertions on the record regarding patentability over the prior art. It appears that the Office has no confidence that the examining corps, properly supported in both numbers and resources, can perform its tasks properly and efficiently. In response, the Office continues to produce proposals that are inconsistent with the reality that the inequitable conduct "defense" will certainly inhibit if not preclude applicants' counsel from providing precisely the sort of information the proposal is designed to seek.

Note: Kevin Noonan is a partner at MBHB LLP in Chicago.

Links. http://www.uspto.gov/web/offices/pac/dapp/opla/presentation/focuspp.html

http://www.uspto.gov/web/offices/com/sol/notices/71fr38808.pdf

Dennis Crouch

crouch@mbhb.com Sent from my mobile phone (please excuse the thumbspeak and typos).

Method Claims Not Exhausted By Sale of Patented Device

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

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

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

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

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

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

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

"In such a transaction, it is more reasonable to infer that the parties negotiated a price that reflects only the value of the ‘use’ rights conferred by the patentee."

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

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

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

Injunctive Relief and the "Working" Standard

eBay v. MercExchange is such a short decision, but we are having an exciting time unwrapping the tidy package. Look at the following quote from the decision involving the question of “working” the invention.

[S]ome patent holders, such as university researchers or self-made inventors, might reasonably prefer to license their patents, rather than undertake efforts to secure the financing necessary to bring their works to market themselves. Such patent holders may be able to satisfy the traditional four-factor test, and we see no basis for categorically denying them the opportunity to do so.

This quote invokes division of labor ideals.  Certain entities simply don’t have the ways, means, or inclination to manufacture, market, and/or sell their inventions.  For those entities, the Supreme Court says that there is no requirement to work the invention. But what about other entities — those with they ways, means, and inclination to work similar inventions?  Doesn’t the Supreme Court’s unanimous opinion imply that there is a basis for denying injunctions to large manufacturers who do not actually practice the inventions in the patents that they assert? 

More notes on the eBay case:

• Patent Validity as a Factor in Determining Injunctive Relief?
• Practice Tip?: Very Good Infringers Avoid Injunctions.
• Patently-O General Discussion of the eBay Decision.
• Patently-O on the Radio.
• Professor Randy Picker on the “unanimous” decision.

eBay v. MercExchange -- on Remand

eBay v. MercExchange (on remand to the CAFC).

In May, 2006, the U.S. Supreme Court decided the eBay case, holding simply that traditional equitable principles must be applied when determining whether to issue a permanent injunction against am adjudged infringer. That decision vacated both the district court’s decision (as over-broad) and the CAFC’s decision (as too narrow). 

On July 6, 2006, the Federal Circuit issued an order (without opinion) sending the case all the way back down to the district court to determine whether, in light of the Supreme Court’s holding, MercExchange’s harm is sufficient to garner injunctive relief.

The Marking Statute of § 287(a) Requires Internet Vendors of Downloadable Patented Software To Mark Their Websites

IMX, Inc. v. LendingTree, LLC, 2005 U.S. Dist. LEXIS 33179 (D. Del. Dec. 14, 2005); motion for reconsideration denied, 2006 U.S. Dist. LEXIS 551 (D. Del. Jan. 10, 2006).

by Eric Lane,

IMX v. LendingTree appears to be the first court decision to hold that compliance with the constructive notice provision of 35 U.S.C. § 287(a) requires a patentee to mark an internet website that facilitates downloads of patented software.

IMX asserted its patent covering a method and system for trading loans against LendingTree. Users download IMX’s web-based software from IMX’s website. LendingTree moved for partial summary judgment to limit damages to those occurring on or after the filing date of the lawsuit because IMX failed to provide constructive notice of the patent. The issue was whether IMX had to mark its website to provide constructive notice.

Although the components of the invention (database and transaction server) can not by viewed by the end user and the website does not embody any claim of the patent, the court found that IMX had a duty to mark its website because the public accesses the commercial embodiment of the patented invention through the IMX website:

Although IMX does not make or sell the computer components through which its patented system is processed, and although the IMX website itself is not the patented invention, nevertheless, consistent with the purpose of § 287(a) as interpreted by the Federal Circuit, the website is intrinsic to the patented system and constitutes a "tangible item to mark by which notice of the asserted method claims can be given" . . . The point of public access to the patented invention of the ‘947 patent since March 2000 has been through IMX's website; therefore, marking the patent on the website is required.

The IMX case is still pending, but if the marking decision is appealed, would it hold up under Federal Circuit scrutiny? The IMX court found that IMX’s website was a "tangible item" under the Federal Circuit’s American Medical Systems decision, but in American Medical Systems, the "tangible item" at issue was an article produced by the method of the patent-in-suit:

In this case, both apparatus and method claims of the ‘765 patent were asserted and there was a physical device produced by the claimed method that was capable of being marked. Therefore, we conclude that AMS was required to mark its product pursuant to section 287(a) in order to recover damages under its method claims prior to actual or constructive notice being given to MEC.

Yet the IMX court explicitly acknowledged that the IMX website is not the patented invention, so the decision is not consistent with AMS.

On the other hand, the IMX decision could be read as finding the website through which the patented product is accessed to be the legal equivalent of product packaging, which would require marking under § 287(a), or that the website is akin to a product insert. There is some case law that supports the proposition that marking patent notice on materials that are included with each individual patented article, though not on the packaging itself, would satisfy the marking requirement under § 287(a). See Calmar, Inc. v. Emson Research, Inc., 850 F. Supp. 861 (C.D. Cal. 1994) (§ 287(a) requires either marking the patented article itself "or, at least, including something with the packages in which the patented articles are shipped which would indicate the article’s patent number"); Stryker Corp. v. Intermedics Orthopedics, Inc., 891 F. Supp. 751 (E.D.N.Y. 1995) (patentee did not comply with section 287(a) because it failed to mark the product packaging "[n]or was there any evidence offered at the trial by the plaintiff that . . . other literature containing the patent marking was placed in the packaging of the [patented surgical implant] that was distributed to vendors and end-users”).

Note: This post is the first in a series of posts by a team of attorneys at Morgan & Finnegan's New York office.  The team is led by former Markey clerk, Mark Abate.

Forum Shopping in Patent Cases

Because patents rights are based on Federal law, forum shopping has always been a part of patent litigation.  Some plaintiffs choose the convenience or perceived security of a local courthouse while others go in search of districts with more favorable patent rules or juries.  In the years leading up to the formation of the Court of Appeals for the Federal Circuit (CAFC), forum shopping was in full swing because of the varying treatment given to patent rights in the circuit courts of appeals. The Seventh Circuit, for instance, treated many issues differently than did the Second Circuit.  In the end, some circuits were entirely avoided by thoughtful patentees because of their track-record of invalidating or narrowing patent rights. More recently, the “rocket docket” of the Eastern District of Virginia was a great place to obtain a quick decision.  Today, however, the hot spot is the Eastern District of Texas (EDT) because of the impressive string of large jury verdicts.

EDT is so popular that it has its own specialized patent blog coverage — by attorney Michael Smith. (who I recently met at the AIPLA Chicago meeting). In a recent series of postings, Smith noted a milestone in the EDT history — the first defense verdict in years.  In Sensormatic v. WG Security Products, Inc., the jury came back with a verdict of non-infringement.  According to Smith:

The parties put on 14 live witnesses and 4 video-only witnesses in the space of four days plus one hour on Friday morning, which is about par for the length of a patent trial in Judge Ward's court. This is the 21st patent verdict in the district in recent years that I am aware of, and the first defense verdict by a jury. 

For those of you interested in patent defense insurance — it appears that the defendant here was insured by Intellectual Property Insurance Services of Louisville, Kentucky.

Notes:

• Read Smith’s commentary here.

 

Happy Fourth-of-July

As American as apple pie (U.S. Patent No. D467,404).