Rooklidge: Patent Reform Damages Provision Violates Seventh Amendment

The following post is by Bill Rooklidge. Rooklidge is a patent litigator and former head of the AIPLA. He clerked at the Federal Circuit in the early 1980's.

Richard Cauley’s March 14, 2009 guest post accurately characterized the damages reform provision of the Patent Reform Act of 2009 as “a judicial nightmare” because of its procedural complications, attendant delay and reversal potential. Two additional problems with that provision merit note: it perpetuates prior art subtraction and introduces into jury trial multiple potential violations of the Seventh Amendment.

Fact-finding and the Seventh Amendment. The Supreme Court coined the term “gatekeeper” in Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993), to describe the trial court’s obligation to “ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable.” In addition to rulings on Daubert motions, courts also fulfill their gatekeeper role by ruling on motions for summary judgment and judgment as a matter of law, motions in limine, evidentiary objections, and jury instructions. The bills’ damages section would enhance the courts’ gatekeeper role, but in doing so unconstitutionally invade the jury’s province as fact finder.

The bills would add to 35 U.S.C. §284 paragraph (c)(1), which would require the court to select from three methods for calculating a reasonable royalty “based on the facts of the case and after adducing any further evidence the court deems necessary.” A procedural rule requiring the court to weigh evidence to select from alternate theories would be void for depriving the patentee of its right to jury trial. See Fidelity & Deposit Co. of Maryland v. United States, 187 U.S. 315, 320 (1902). A genuine issue of material fact, that is, a dispute over facts that might affect the outcome, requires the issue to go to the jury. See generally Anderson v. Liberty Lobby, 477 U.S. 242 (1986). Similarly, the trial court’s exclusion of the entire market value rule under paragraph (c)(1)(A) for the patentee’s failure to make “a showing to the satisfaction of the court,” would violate the Seventh Amendment in a jury trial in which the patentee presents enough evidence to create a genuine issue of material fact. See Minks v. Polaris Indus., Inc., 546 F.3d 1364, 1372 (Fed. Cir. 2008) (vacating because trial “court necessarily engaged in an independent review of the evidence and substituted its conclusion for that of the jury on the factual issue of compensatory damages”).

The first section of the bills’ section (c)(1)(B) authorizes trial courts to exclude the patentee’s prior licenses for failure to make a “showing to the satisfaction of the court” of three facts regarding the claimant’s other licenses:

“the claimed invention has been the subject of a nonexclusive license for the use made by the invention by the infringer”;

the licenses have been extended “to a number of persons sufficient to indicate a generally marketplace recognition of the reasonableness of the licensing terms”; and

“the license was secured prior to the filing of the case before the court.”

The court also must determine whether the infringer’s use is “of substantially the same scope, volume, and benefit of the rights granted under such license. The second sentence of paragraph (c)(1)(B) requires a similar procedure for noninfringing substitutes for the infringing product or process. And paragraph (c)(1)(C) likewise requires the court to “conduct an analysis to ensure that a reasonable royalty is applied only the portion of the economic value of the infringing product or process properly attributable to the claimed invention’s specific contribution over the prior art.” A court making these findings would invade the province of the jury where the patentee presents substantial evidence on these issues.

Prior Art Subtraction. Section (c)(1)(A)’s requirement for application of the entire market value rule that the “claimed invention’s specific contribution over the prior art” be the “predominant basis for market demand” is just the latest form of “prior art subtraction.” Use of “specific contribution over the prior art” is an attempt to separate the “gist” or “heart” of the invention from the patent claims, and would introduce the extra step of subjectively redefining the scope of a patent. The Federal Circuit long ago rejected using the “gist” or “heart” of the invention to determine obviousness, see Para-Ordnance Mfg. v. SGS Importers Int’l, Inc., 73 F.3d 1085 (Fed. Cir. 1995), and recently rejected using the “point of novelty” in design patent law. Egyptian Goddess, Inc. v. Swisa, Inc., 543 F.3d 665, 678 (Fed. Cir. 2008). Stripping the prior art elements out of the claimed invention that has been examined by the USPTO, construed by the federal district court, and relied upon to determine validity and infringement, in no way approximates the “heart” or “gist” of the invention, and that inherently subjective process would be unfair to the patent owner, and would eliminate application of the entire market value to inventions consisting entirely of prior art elements, arguably the vast majority.

Paragraph (c)(1)(C) would limit the reasonable royalty base to the “economic value of the infringing product or process properly attributable to the claimed invention’s specific contribution over the prior art,” replacing apportionment with prior art subtraction. This analysis is no substitute for the sophisticated and nuanced apportionment approach available under existing case law such as Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1133-37 (S.D.N.Y. 1970). Paragraph (c)(1)(C) would address the combination invention problem by stating that for combination inventions “the contribution over the prior art may include the value of the additional function resulting from the combination, as well as the enhanced value, if any, of some or all of the prior art elements as part of the combination, if the patentee demonstrates that value.” This analysis, which finds no precedent in existing case law and lacks any readily definable economic standards, does not even begin to address the problem that subtracting the prior art elements simply does not approximate what the inventor really invented.

Replacement of “contribution over the prior art” with the “essential features” language from the Supreme Court’s recent Quanta Computer, Inc. v. LG Electronics, Inc., 128 S. Ct. 2109 (2008), would just put another label on prior art subtraction. Regardless of label, the bills’ damages provision would drastically reduce patent owners’ ability to obtain reasonable royalty damages, which could not be less fair to those, like independent inventors, research institutions and universities, that have no ability to obtain lost profits damages.

Notes

• Forward Looking Patent Damages
• Patent Reform 2009: Damages
• Patent Reform Act of 2009
• Richard Cauley’s March 14, 2009 guest post
  
• Rooklidge: Reform of a Fast-Moving Target: The Development of Patent Law Since the 2004 National Academies Report: rooklidgereform.pdf

Comments

[TJ]

Based on the cases cited, color me skeptical. Daubert, of course, substituted a judicial determination about the fact of "reliability" for what had previously been done by juries. The cited Fidelity case does not support the argument, since all it says is that a DC rule for summary judgment is constitutional, without saying anything about what is not constitutional. More generally, if "compensatory damages," simpliciter, is an issue of fact and must be subject to plenary jury determination, then the Georgia Pacific factors themselves are unconstitutional.

[Paul F. Morgan]

NOT to defend any of the variously proposed legislation provisions on damages or their choices of language, but I can't see anyone trying to tell District Court judges that they have no discretion to tailor jury instructions as to which ones of the various present conflicting or overlapping factors or tests [at least 16?] for calculating patent infringement damages [not even including willfulness] are more appropriate for their case. I'm also sure no one is seriously arguing that judges are Constitutionally required to give ALL POSSIBLE damages tests to the jury in every case. So theoretically perhaps there could be some reasonable intermediate position.
But no reasonable intermediate position seems likely after three years of intense lobbying disputes.
Thus it seems to be high time for the Federal Circuit to try to bring some workable guidance on this whole subject (perhaps in Lucent v. Gateway?), as there does not seem to be any way there will ever be any agreement on legislative solutions. Indeed, how can there be, when there is no agreement as to the degree of clarity or confusion (especially to juries) of the CURRENT law? [Which does not help settlements either.]

[Sid Rosenzweig]

The argument that the amendment is unconstitutional strikes me, politely, as tenuous, at least in the manner in which it is argued in the post. Daubert was not a constitutional case, which is to say that it did not draw a line between what is constitutional and what is not. Same with Liberty Lobby. An argument of this sort would need to rely, I think, on something like Beacon Theaters v. Westover, 359 U.S. 500 (1959), or any other case in which the Court found the jury role actually to be usurped. While I'm not an expert on Beacon's progeny, it seems unlikely to me that a court would find that these amendments to the damages provision cause the jury right to be "lost." (see Beacon.)

Congress has an awfully challenging task ahead of it, trying to reconcile all the competing political interests, and firing off essentially unsupported salvos about unconstitutionality is not helpful.

A more nuanced analysis might ask whether this is really a procedural or substantive change and whether existing patentees have any retroactive rights against such changes. (The better historical argument may be that there cannot be a retroactive diminution of the patent right.)

[Just sayin']

Its nice, for a change, to hear from people who really know what they're talking about (I'm talking about the author).

[curious]

” Use of “specific contribution over the prior art” is an attempt to separate the “gist” or “heart” of the invention from the patent claims, and would introduce the extra step of subjectively redefining the scope of a patent."

Litigation would become more complicated, longer and more expensive, and less predictable

[jay]

Excellent post! I really enjoyed reading it. I will be back for more! Sincerely, Jay
http://vgtrailers.blogspot.com/

[me]

The real point here is that patent reform will cause great uncertainty in the courts - and thus in board rooms across the United States as every change in it will be litigated to the hilt. This is exactly the wrong time to introduce yet more uncertainty into boardrooms, as everything they thought they new about the economy and finance is already in doubt. Even the most basic provisions that people seem to agree on will be litigated - there is a solid argument that "first to file" is unconstitutional as the constitutional grant is to the "inventor" (can there be a second true inventor?). I do not wish to debate that now, but the point is - uncertainty will reign if this passes, and that alone will hurt the economy beyond the silly provisions in this bill.

STOP PATENT REFORM, PLEASE, PRETTY PLEASE.

[Inviting body punches]

Legal subtlety aside, I find the second-to-last paragraph of the article to be devoid of content.

The first sentence is merely descriptive.

The second sentence is conclusory and without supporting evidence or argument.

The third sentence is merely descriptive.

The last sentence is again conclusory and without supporting evidence or argument.

I know it's only a blog article, but the ratio of ranting:reasoning still seems too high to efficiently impart any utility.

[Babel Boy]

I have to take issue with Bill's overall concern here, which appears to be that the proposed legislation is not consistent with court precedent. Likewise "me" worries that the real concern is "uncertainty in the courts."

Articles I, II, and III of the Constitution set up the way the federal system works -- if Congress doesn't like the way things are going in the courts, Congress writes laws that set the courts "right." "Right" is determined by what the country's elected officials say, not what the unelected jurists think.

As to "uncertainty in the courts" . . . you gotta' be kidding. It's the uncertainty caused by the courts that Congress now has to come in and clean up. Go back and read Bilski again.

Bill also notes under "Prior Art Subtraction" that many inventions are combinations of known elements so when you subtract the prior art elements what you have left is zilch. Wrong.

What you have left are the limitations, and limitations are patentable. The way known elements are combined is a limitation, which is patentable, and which, presumably, has value.

Patent practitioners seem universally to ignore the distinction between elements (or steps) and limitations.

[me]

Babel Boy-

You get my consern wrong. Even if Constitutional, the law will be heavily litigated and you know it. It was 1967 beofre Graham decided some basic provisions of the 1952 Patent Act. I think we are looking at a decade or more before we even know what provisions of the bill would mean if codified as law, thus my concerns are simple straight forward litigation following every legislative change to any law - it is just that this one is so heavily litigated and the gov even asks for litigation (ANDA) thus we are looking at long term uncertainty if this passes, and you know it.

[me]

As to the rest of your comment - the parts that are intelligible at least - this thing will make Bilski look like childs play and open huge settled areas of law to further litigation.

[me]

Babel Boy-

You get my concern wrong. Even if Constitutional, the law will be heavily litigated and you know it. It was 1967 before Graham decided some basic provisions of the 1952 Patent Act. I think we are looking at a decade or more before we even know what provisions of the bill would mean if codified as law, thus my concerns are simple straight forward litigation following every legislative change to any law - it is just that this area is so heavily litigated (and the gov even asks for litigation - ANDA) thus we are looking at long term uncertainty if this passes, and you know it.

We can't afford that now, and the law in this area is pretty well stelled - the courts are really just tweaking and over-turning some bad decisions (like State Street).

[big hairy rat]

"This analysis, which finds no precedent in existing case law and lacks any readily definable economic standards..."

Gosh, I thought economists were pretty familiar with the concept of incremental (marginal) benefit.

Lawyers who generally don't know the difference between the average and the median (and who vapor lock if you say the average minimizes the L2 norm and the median minimizes the L1 norm) may not be familiar with marginal pricing.

[Babel Boy]

me, nobody is doubting that changes to the case law of damages is going to take some effort and will generate some confusion. It is only those with their heads stuck in the ground, or otherwise, that argue that the resulting temporary uncertainty is a reason not to move ahead.

As to the parts of my comment that are not "intelligible," I apologize. The comment seemed to be a paragon of clarity to me, but let me clarify for you.

Claim 1 has 3 elements, A, B, C, and four limitations a, b, c, d. All three elements are well known in the art. Limitation a is also known in the art, but limitations b, c, and d are novel and non-obvious.

So if you apply Bill's "prior art subtraction" to this claim, what you are left with are limitations b, c, and d. That means, of course, that Claim 1 is not reduced to zero, but, rather, taken as a whole Claim 1 is novel and non-obvious.

Bill was saying that any claim minus its elements equals zero, and I disagreed by pointing out that limitations are not elements and that limitations have value.

[MaxDrei]

Great stuff, all this about what's an element and what's a limitation. It's utterly unknown to anybody doing claim construction in Europe. I suppose the distinction does serve some useful purpose, otherwise the US wouldn't be using that terminology, right? Might I ask, can you always tell the one from the other, or can one man's "element" sometimes be another man's "limitation"?

[me]

Babel-

"me, nobody is doubting that changes to the case law of damages is going to take some effort and will generate some confusion. It is only those with their heads stuck in the ground, or otherwise, that argue that the resulting temporary uncertainty is a reason not to move ahead."

No, I would argue the opposite. The prior art subtraction technique works well in some art areas (pharma) but terribly in others (chemistry) or even worse the unpredictable arts - so why do you insist on a system that only works in the art area you happen to be familiar with? What is wrong with Feinstein's move to codify the well litigated and known GP factors if we must change? I would say my head is well above the ground and seeing the consequences not only across art areas, but also across the economy while it is your head safely tucked in a very dark place.

[Lionel Hutz]

I agree with the specific criticisms in both this and the previous post. The fact of the matter is, most judges do (and are supposed to) take into account the actual contribution of the patented invention as well as the contribution of other included technological features, advertising, brand name power, etc. when determining damages presently.

[Lionel Hutz]

Big Hairy Rat,

It has been awhile since I had any formal courses in this area, but my understanding was that the average could mean either the mean or the median (although, I have almost always associated it with the former).

[Lionel Hutz]

Max,

I believe the point of the OP was to distinguish between the elements that are included in a pateneted invention and the actual claim limitations themselves. If you refer to the actual structural components of a product claim or the steps of a method claim as elements then the elements and the limitations of a claims are the same.

[puppetly yours]

To Malcolm "the big hairy rat" Hutz,

I see the puppet show is alive and well...

[MaxDrei]

Thank you Lionel Hutz but I'm still confused by Babel's

"Claim 1 has 3 elements, A, B, C, and four limitations a, b, c, d. All three elements are well known in the art. Limitation a is also known in the art, but limitations b, c, and d are novel and non-obvious."

I'm wondering, still, whether I will be able to sort correctly into "elements" and "limitations" the words of the next claim I have to look at, in the office today.

[Babel Boy]

me -- you are putting words in my mouth. I am not advocating for any specific approach for any field. I am just pointing out that the limitations are patentable IN ALL FIELDS so if the PA discloses all the elements there may still be value in the claim.

Max -- basically, the distinction can be discerned grammatically. Elements are nouns. Steps are verbs or gerunds. Limitations are almost always adjectives, adverbs or modifying phrases, usually beginning with "wherein".

My position, which is not widely held, is that the distinction is vital in prosecution because the examiner must show you the elements in the PA but he/she can meet the claim limitations by concocting them out of thin air as "obvious."

[MaxDrei]

Clear now. Tks Babel. I can see a faint echo of your position in the practice of EPO Examiners. I must say though, I'm sceptical how long it will be, before your view comes to be "widely held".

[Lionel Hutz]

Max,

Babel Boy's distinction is incorrect and not used by any practitioner of which I am aware. Anything after the preamble of a claim is a limitation. If you claim that machine A comprises component X, then X is a limitation of A.

[Babel Boy]

Lionel, it's been too long since you cracked a copy of Landis. Do you have authority for your view that everything downstream of the preamble is limitation? That's extreme.

Structure is normally an element, as in: A machine, said machine comprising a first gear set. Gear set is an element, although "gear" could also be looked at as being a limitation of "set." Precise grammar dictates using "gear-set" if the whole is meant as one thing.

Of course, structure (nouns)can also be part of a limitation in the form of a clause, and/or when the structure is inferentially claimed, as in: .

A machine, said machine comprising a gear, wherein said gear is coupled to a shaft.

"Coupled to a shaft" is a clause incorporating structure and also limiting "gear." The shaft is not, per se, claimed as an element even though it is structure.

If this was the whole claim, it only has one element -- gear. I wouldn't consider machine an element because, by definition of "element", the elements are the constituent parts of the machine and the machine isn't a constituent part of itself. But here we're getting into set theory. No, not gear-set theory, logic set-theory. ;-}

Can you write good, strong claims without this type of analysis. Absolutely, and I'm sure you do.

[Just an ordinary inventor(TM)]

Dear Mr. Babel Boy,

Re: “Just sayin' sounds like our old friend, Just An Ordinary Troll.” on another thread.

Wrong, Babel, you’ve mistakenly confused me with another, one whom we all in the know admire.
I’ve been/am pre-occupied (I haven’t read more recent threads).
But I feel flattered you’d think of me composing such a brilliant comment written by Just sayin’, thank you.

Incidentally, your pen name suits you to a tee:
1 : a city in Shinar where the building of a tower is held in Genesis to have been halted by the confusion of tongues
2 often not capitalized a : a confusion of sounds or voices b : a scene of noise or confusion.

Boy!, I’d suggest you grow up. I’ve more or less stopped reading your comments.

[Jules]

"puppetly yours" ... also probably the same guy with the Reagen obsession ...

You are either a) paranoid, or b) right like the guy that ousted the owner of the patent troll tracker blog ... my guess is paranoid.

What is it that bothers you so much about anonymous comments? Or is it a biased media that bothers you? I suggest that if it's harming your mental health, that you consider dropping the whole "investigation" before you hurt yourself.