Patent Law Blog (Patently-O)

Guest Post by Dr. Jeffrey Lefstin on USPTO's Proposed First-to-File Rules

This morning the patent office published its proposed rules relating to the transition to a "first-to-file" system (available here).  Below, Dr. Jeffrey Lefstin of the Hastings College of the Law offers his initial thoughts on this important set of proposed rules. - Jason

Guest Post by Dr. Jeffrey Lefstin

On July 26, 2012, the USPTO published proposed Rules and Examination Guidelines for implementing the first-inventor-to-file provisions of the America Invents Act.   While the content of the proposed Rules is largely technical, the Office stakes out some substantive positions on the prior art provisions of the AIA in the proposed Examination Guidelines that are sure to raise controversy.

Secret Commercialization a Bar?  At least since Judge Learned Hand’s famous  Metallizing Engineering opinion in 1946, secret commercialization of an invention by the inventor -- but not third parties -- has triggered the statutory bar.  The rationale of this doctrine has been to discourage inventors from enjoying a pre-patent period of commercial exclusivity in addition to the exclusivity of the patent term.  While the AIA did not directly address the Metallizing rule, the AIA’s new 102(a) added a category of events triggering the statutory bar.  In addition to the traditional triggers of the statutory bar – patented, described in a printed publication, in public use, or on sale – new 102(a) adds a catch-all “or otherwise available to the public before the effective filing date of the invention.”  According to the USPTO, by adding “or otherwise available to the public,” Congress intended that only “public” sales of the invention – not secret or private commercial activity – should trigger the statutory bar. Nonetheless, the Office is seeking comment from the public on the role of “public availability” before issuing its own interpretation of “on sale” under new 102(a).

Leading commentator Hal Wegner points out that earlier versions of the AIA – such as the Patent Reform Act of 2005 – would have explicitly overruled Metallizing, by restricting prior art to sales from which one of ordinary skill in the art could readily “gain access to”  and “comprehend” the invention. That such provisions were removed from the final legislation suggests that Congress did not intend to negate the Metallizing rule, but in the end the Federal Circuit will almost certainly have to resolve this question.

Use and Sale Protected By Grace Period.   Section 102(b) of the AIA provides a limited grace period and preclusive effect for pre-filing disclosure by the inventor.  Specifically, under 102(b)(1)(A) a “disclosure” made one year or less before the effective filing date of an application is not prior art if the disclosure was made by the inventor (or a joint inventor, or one who obtained the subject matter disclosed directly or indirectly from the inventor). Under 102(b)(1)(B), a third-party disclosure of the same subject matter less than one year before filing is not prior art if the inventor has previously disclosed the same subject matter.  The AIA did not define “disclosure,” leading to questions about whether public use or sale would be excluded from prior art if by the inventor, whether use or sale by the inventor would preclude later disclosure by third parties, or whether third party use or sale would be precluded by prior inventor disclosure.  Under the USPTO’s interpretation, “disclosure” under 102(b) encompasses all the prior art  categories of 102(a):  patented, described in a printed publication, in public use, on sale, otherwise available to the public, or described in a U.S. patent, published U.S. patent application, or WIPO published application.  Accordingly, public use or sale by the inventor can trigger the preclusive effect of 102(b), and third-party use or sale can be precluded by prior inventor disclosure.

Preclusive Effect Nearly Eviscerated?  Perhaps the most radical stance taken by the Office in the Guidelines is its treatment of the preclusive scope of a prior inventor disclosure under 102(b)(1)(B) and 102(b)(2)(B).  Under these provisions, third party disclosures and patent applications are not prior art if the “subject matter disclosed” had previously been disclosed by the inventor.  Prior inventor disclosure therefore precludes later disclosures of the same subject matter from being prior art.  But this provision leads to a critical question:  when do an earlier and later disclosure disclose the same subject matter?  What if the later disclosure is not identical, but an obvious variation of the inventor’s earlier disclosure?  What if the earlier disclosure is broader than the later, or vice versa?  Is the use or sale of a physical thing (or intangible process) the same subject matter as a verbal description – which by necessity covers a multitude of physical entities?  The AIA leaves these questions unanswered.  In a Patently-O post last year, I outlined two possible approaches the courts and the Office could take for determining the scope of preclusive effect, and the identity of earlier and later disclosures.

In the proposed Guidelines, the Office takes a third route:  only exactly identical third-party disclosures are precluded by prior inventor disclosure. According to the proposed Guidelines:

Even if the only differences between the subject matter in the prior art disclosure that is relied upon under 35 U.S.C. 102(a) and the subject matter publicly disclosed by the inventor before such prior art disclosure are mere insubstantial changes, or only trivial or obvious variations, the exception under 35 U.S.C. 102(b)(1)(B) does not apply.

The exception under 102(b)(2)(B) is similarly limited. Thus, according to the Office’s interpretation, if the inventor discloses her invention on January 1, and a third party independently discloses a trivial and obvious variation on January 2, the third party’s disclosure is not excluded from prior art (and, of course, renders the invention unpatentable as obvious under § 103. Although the Guidelines do not address the case of specific versus generic disclosure, or physical use versus verbal description, the Office’s denial of preclusive effect for a trivial variation suggests that it would deny preclusive effect in these cases as well.

If the position in the Guidelines is sustained, the AIA’s grace period with respect to later independent third-party disclosures would seem to be nearly eviscerated.  Moreover, even where the later third-party disclosure was actually derived from the inventor, the inventor will face the difficult and complex task of proving derivation, rather than simply relying on the preclusive effect of his own earlier disclosure.

Of course, the Office’s proposed Guidelines are at the moment just that – proposals.  And even if adopted, they would ultimately be subject to the decision of the Federal Circuit – which, though it grants considerable persuasive weight to Office positions, does not accord them Chevron deference on substantive questions of patent law.

The proposed Rules and Guidelines are open for public comment until October 5, 2012, and are available here.  The Office will also be discussing its proposals at “roadshows” to be held in Alexandria, Atlanta, Denver, Detroit; Houston, Los Angeles, Minneapolis, and New York in September.

Global-Tech v. SEB: Respondent and Additional Amicus Briefs

By Jason Rantanen

In Global-Tech v. SEB, the Supreme Court is addressing the state of mind requirement for inducement of infringement.  The petitioner, along with several amicus briefs filed in support, argues that inducement should require that the accused intend to infringe the patent, and that the accused infringer must know of the patent being infringed.  Earlier Patently-O discussions of those briefs are available here and here.

Last week, the respondent (SEB) filed its briefs.  SEB argues that there is no basis for requiring evidence that the accused party possess actual knowledge of the patent; rather, inducement must require a lower state of mind standard than both 35 U.S.C. § 271(c) (contributory infringement) and willful infringement, a standard that is met by Pentalpha's conduct.  In the alternative, SEB argues that Pentalpha's conduct constituted willful blindness, which SEB contends is a form of constructive knowledge and thus is sufficient for inducement.  In addition, SEB argues that the Court should affirm because all the damages were attributable to Pentalpha's direct infringement and because, through it's finding of willful infringement, the jury necessarily found that Pentalpha had actual knowledge of the patent.

Several amicus curiae have also filed briefs in support of the respondent, all arguing that inducement should require only intent to cause the acts as opposed to some form of scienter with respect to whether those acts infringe a patent.  Among these is the brief of a group of law professors led by Professor Ted Sichelman, argues that inducement should require only specific intent to cause the infringing acts - not some form of scienter with respect to whether the acts infringed a patent.  The brief supports this argument by looking to tort and criminal law, pointing out that in those contexts it is not necessary for the accused to know that that the acts violate a legal duty - only that the accused intend to cause the acts themselves. It also argues that prior to the 1952 Patent Act, no court (with one exception as dicta), held that indirect infringement required knowledge of the patent.  Thus, the brief argues, while inducement of infringement should require specific intent to further the acts of direct infringement, it did not traditionally - and should not - require any form of knowledge of whether those acts infringe a patent. 

Oral Argument is set for Wednesday, February 23, 2011.

SEB's Brief:

• Brief for Respondent SEB S.A.

Amicus Briefs in Support of Respondent:

• Brief for the American Intellectual Property Law Association in Support of Respondent
• Brief for the William Mitchell College of Law Intellectual Property Institute in Support of Respondent
• Brief for Law Professors in Support of Respondent

Note: I understand additional briefs may have been filed, including one on behalf of several companies and PhRMA, that do not appear on the ABA site.  This post will be updated when those briefs are available.

The Use of Online Databases for Legal Scholarship

By Jason Rantanen

Many empirical studies of Federal Circuit jurisprudence rely on searches of one of the leading legal databases such as Westlaw or Lexis.¹ Relying on a search of a single database is potentially problematic, however, if the substantive content of the databases is not identical - in other words, if Lexis and Westlaw don't contain the same universe of cases, any claims about the results are necessarily limited by the dataset being used. 

In order to avoid this problem in connection with an empirical study of inequitable conduct that I'm working on, I recently performed a comparison of results obtained by a keyword search on Westlaw versus an identical search on Lexis.  This comparison revealed that although the data obtained from the two sources is largely comparable, small differences do exist that certain types of searchers may want to take into account.

The chart below shows the results, by year, produced by searching for the term "inequitable conduct" in the Federal Circuit databases for Lexis and Westlaw.^2,3  In large part, the results suggest that there is relatively little variation between the two databases: in the context of this analysis, only 30 out of 681 (4.4%) Westlaw opinions were not found in Lexis and only 6 out of 657 (0.9%) Lexis opinions were not found in Westlaw.  Furthermore, in no instance did a precedential opinion appear in one database but not another.  Rather, all of the single-database hits were nonprecedential opinions.  In addition, nearly all of the nonprecedential opinions appearing in only a single database issued prior to 1991.   That said, there is a significant difference with respect to nonprecedential opinions for the period prior to 1991: nearly all the nonprecedential opinions from this time period are found in only one database.⁴  Thus, while it may not be efficient for most practitioners to run keyword searches on multiple databases, scholars conducting empirical research on Federal Circuit decisions, or individuals searching for older party-specific nonprecedential opinions, may want to be sensitive to the differences between the two databases.

Figure 1: Hits Resulting from Search Term "Inequitable Conduct" in Lexis and Westlaw⁵

 


¹ See, e.g., Christopher A. Cotropia, "Determining Uniformity Within the Federal Circuit By Measuring Dissent and En Banc Review," 43 LOY. L.A. L. REV. 801, 811 (2010); Christian E. Mammen, Controlling the "Plague": Reforming the Doctrine of Inequitable Conduct,24 BERKELEY TECH. L.J. 1329, 1348 (2009);  Craig Allen Nard, Toward a Cautious Approach to Obeisance: The Role of Scholarship in Federal Circuit Patent Law Jurisprudence, 39 HOUS. L. REV. 667, 678 fn 40 (2002); Christian A. Chu, Empirical Analysis of The Federal Circuit's Claim Construction Trends, 16 BERK. TECH. L.J. 1075, 1092 (2001); but see R. Polk Wagner and Lee Petherbridge, Is the Federal Circuit Succeeding? An Empirical Assessment of Judicial Performance, 152 U. PA. L. REV. 1105, 1145 (2004) (using results from both Lexis and Westlaw).  In addition, some early empirical studies used the United States Patent Quarterly as their source (see, e.g., John R. Allison & Mark A. Lemley, How Federal Circuit Judges Vote in Patent Validity Cases, 10 FED. CIR. B.J. 435, 436 (2001)), which apparently contains some, but not all, nonprecedential patent decisions.  See e.g., Wirco, Inc. v. Rolock, Inc., 17 U.S.P.Q.2d 1084, 1990 WL 12901 (Fed. Cir. Feb. 14, 1990) as opposed to Mechanical Plastics Corp. v. Unifast Industries, Inc., 1988 WL 25422 (Fed. Cir. March 28, 1988).

²  For purposes of creating this chart, I used the additional limitation "CO(c.a.fed.)" to exclude CCPA and Court of Claims decisions, some of which are included in Westlaw's "ctaf" database.  In addition, I separately compared the results from a keyword search of the entire "ctaf" database to the results from the Lexis search in order to identify any Lexis-only hits that might have been excluded by the Westlaw court limiter.  This process did not reveal any such hits.

³ These results include every search hit that contained the term "inequitable conduct," regardless of the context.  It thus should not be viewed as reflecting any measure of substantive inequitable conduct determinations.  In addition, hits resulting from search terms appearing only in the database-specific casenotes were excluded, as were instances where the database contained duplicate entries of the case opinion or included a copy of a withdrawn opinion.   For more substantive analyses of inequitable conduct jurisprudence, see Lee Petherbridge, Jason Rantanen & Ali Mojibi, The Federal Circuit and Inequitable Conduct: An Empirical Assessment, ssrn id 1686102; Mammen, supra note 1.

⁴ In addition to double-checking the single-database cases against the search results of the other database, I also spot-checked several decisions against the Lexis/Westlaw case database as a whole by using terms from the parties' names and the Federal Reporter citation, where available.  Although in some instances this resulted in a hit, the contents of those hits were blank.  See, e.g., Air Products & Chemicals, Inc. v. Tanner, 738 F.2d 454 (1984) (nonprecedential) (no opinion in Westlaw; opinion in Lexis).

⁴ Although the results for 1997 appear equal, each database contained one opinion for that year that is not in the other database.

In re Glatt Air Techniques, Inc.: Single Embodiment Commercial Success

By Jason Rantanen

In re Glatt Air Techniques, Inc. (Fed. Cir. 2011)
Panel: Newman, Prost (author), Moore

Glatt Air Techniques involves the reexamination of Patent No. 5,236,503, relating to an improvement to an apparatus known as a Wurster coater used to coat particles such as pharmaceutical ingredients.  The improvement comprises a shield means, such as a physical shield or air wall, positioned adjacent the spray nozzle that prevents particles from prematurely entering the stream of the coating spray before the spray pattern has fully developed, thus causing blockages in the apparatus.  During reexamination, the examiner rejected the claim at issue as obvious in light of the prior art, a determination that was upheld by the Board of Patent Appeals and Interferences.  In reaching its conclusion, the Board also rejected Glatt's commercial success evidence because it related only to a single embodiment - a physical shield - and the claim also covered the use of an air wall.  Thus, the Board concluded, the evidence was not commensurate in scope with the claim.

On appeal, the CAFC first found that the Board had failed to establish a prima facie case of obviousness.  It also disagreed with the Board's rejection of Glatt's evidence of commercial success, expanding on its past holding that "commensurate" does not mean "every" embodiment.   "The fact that Glatt’s commercial products only contain one type of shielding means does not make its commercial success evidence irrelevant. Under the PTO’s logic, there would never be commercial success evidence for a claim that covers more than one embodiment."  Slip Op. at 10.  Citing past precedent, the CAFC went on to state that "we have consistently held that a patent applicant “need not sell every conceivable embodiment of the claims in order to rely upon evidence of commercial success.” Id. (quoting In re DBC, 545 F.3d 1373, 1384 (Fed. Cir. 2008).  Thus, "commercial success evidence should be considered should be considered 'so long as what was sold was within the scope of the claims.'” Id.

Comment: Note that simply being commensurate with the scope of the claim does not necessarily satisfy the nexus requirement, as illustrated by the outcome of In re DBC.

Update: PharmaPatents Blog provides a detailed discussion of the CAFC's reversal of the Board's prima facie case of obviusness, asking whether there was anything else the applicant could have done to avoid a rejection by the examiner and Board.   

Judge Moore Weighs In on Vacatur of Invalidity Opinions

By Jason Rantanen

The Ohio Willow Wood Company v. Thermo-Ply, Inc. (Fed. Cir. Order 2011)
Panel: Rader (author), Newman (additional views), Moore (concurrence)

When a patentee is faced with an judgment of invalidity or inequitable conduct, it is a relatively common tactic to settle with the accused infringer who, as a condition of the settlement agreement, then joins the patentee in a joint motion for vacatur of the adverse decision.  Although vacatur requires exceptional circumstances, it is sometimes granted by the district court.  See e.g., Gracenote, Inc. v. MusicMatch, Inc.; Block Financial v. LendingTree; New Medium v. Barco.

The situation becomes more complex, however, when settlement occurs while the case is on appeal. Willow Wood involves an appeal of an Eastern District of Texas judgment invalidating the asserted claims of Patent No. 7,291,182.  While the appeal was pending, the parties settled and filed a motion for remand to the district court for consideration of a motion for vacatur.  In July 2010, the CAFC issued an order pointing out the high standard for vacatur and ordered the parties to explain what extraordinary circumstances would be presented to the district court that would justify vacatur.  Ohio Willow Wood Co. v. Thermo-Ply, Inc., (Fed. Cir. Order July 29, 2010) (nonprecedential). 

After considering the parties' response, along with an intervention request by a third party also being sued for infringement of the patent, the panel granted the request for "the limited purpose of the district court's consideration of the parties' motion for vacatur."  Ohio Willow Wood Co. v. Thermo-Play, Inc. (Fed. Cir. Order 2011) (Willow Wood II). The CAFC retained jurisdiction, however, "so that any of the parties may seek appellate review by notifying the Clerk of the Court within thirty days of entry of the district court’s decision on remand."  Id. at 3.

Concerned about the remand's potential imprimatur on the joint vacatur motion, Judge Moore, writing in concurrence, expressed the opinion that vacatur of existing invalidity opinions should be a rare and disfavored event, particularly in the patent context.  Citing U.S. Bancorp Mortgate Co. v. Bonner Mall Partnership, 513 U.S. 18, 29 (1994), the judge reiterated the high threshold for justifying vacatur following settlement: "[o]nly in 'exceptional circumstances' should a district court grant vacatur at the request of the litigants."  Willow Wood II concurrence at 2.  This is particularly true with respect to patents:

In this case, for example, the patentee has already sued another party on the patent in question. If the decision that invalidated the patent at issue is not vacated, then the patentee will be collaterally estopped from asserting this patent in this and other suits, thereby saving courts and litigants the time and money it takes to proceed with patent litigation. Patent litigations are among the longest, most time-consuming types of civil actions. As of 2009, 384 patent cases had been pending in the district courts for three years or more. 2009 Admin. Off. U.S. Cts. Ann. Rep., at Table S-11. Moreover, the costs of patent litigation are enormous with an average patent case costing upwards of $3 million for each side. See American Intellectual Property Law Association, Report of the Economic Survey 2009 I-129 (2009). If the district court vacates its invalidity judgment then other defendants and other district courts will be forced to proceed with infringement suits, as there would likely be no collateral estoppel. Even if there were no other suits pending, these concerns should still weigh heavily against vacatur, as the only reason the patentee would want an invalidity judgment vacated is to potentially enforce the patent against others.

Concurrence at 3-4.

Judge Moore's decision to weigh in on the merits of the vacatur issue was criticized by Judge Newman, however, who wrote separately "to point out that the views of our colleague in separate concurrence are not the court’s remand order." Willow Wood II, additional views at 2.  Although favoring the remand on the basis that the district court is in the better position to rule on the issue of vacatur, Judge Newman declined to endorse Judge Moore's proffer of judicial advice, commenting that "[o]ur remand should be unencumbered by even the appearance of prejudgment or of the weight to be given to various considerations. Indeed, the issues on which our colleague in concurrence offers judicial advice are more complex than is here recognized."  Id.

In re Microsoft: Presence Created Solely for Purposes of Litigation Does Not Support Venue

By Jason Rantanen

In re Microsoft Corporation (Fed. Cir. Order 2011)
Panel: Newman, Friedman, Laurie (per curium)

The Federal Circuit's decision in In re Microsoft, which granted Microsoft's request for a writ of mandamus ordering the Eastern District of Texas to transfer the case to Washington State, originally issued as a nonprecedential order in early November; the CAFC reissued it as precedential today.  The order adds another piece to the now fairly substantial body of law surrounding review of denials of requests to transfer venue.  Allvoice Develop-ments, a company operated from the United Kingdom, sued Microsoft in the Eastern District of Texas for infringing Patent No. 5,799,273.  Microsoft, which is headquartered in the Western District of Washington (where a substantial portion of its employees and operations are located), requested a transfer of venue to Washington State. 

In denying Microsoft's motion to transfer venue, the district court relied on the existence of a local Allvoice office in Tyler, as well as Allvoice's incorporation under the laws of Texas.  The court also weighed the witness factor against transfer because Allvoice had identified potential non-party witnesses in New York, Massachusetts and Florida who, the court found, would find Texas more convenient for trial.  Although the court found that the sources of proof factor weighed in favor of transfer, it did so only slightly because Allvoice said that its documents were maintained in its office in the E.D. Texas. 

On appeal, the Federal Circuit granted Microsoft's request for a writ, likening this case to In re Genentech, Inc., 566 F.3d 1338 (Fed. Cir. 2009), and concluding that the district court abused its discretion by denying transfer.  The CAFC first noted that there was a vast disparity with respect to the convenience of witnesses: all individuals identified by Microsoft as having material information relating to the patents reside within 100 miles of the W.D. Wash.; all but two of the witnesses identified by Allvoice reside outside Texas, and even those two witnesses appear to be relatively peripheral.

Particularly notable, however, was the CAFC's refusal to consider Allvoice's presence in the E.D. Texas.  "Allvoice’s argument … rests on a fallacious assumption: that this court must honor connections to a preferred forum made in anticipation of litigation and for the likely purpose of making that forum appear convenient."  Slip Op. at 5.  Thus, just as transferring thousands of pages of relevant documents to the offices of litigation counsel in Texas in order to assert that the location of those documents favored non-transfer was entitled to no weight in In re Hoffmann-La Roche Inc., 587 F.3d 1333 (Fed. Cir. 2009), so too is the existence of an office created solely for the purpose of manipulating venue a meaningless fact for the venue analysis.  Nor did the CAFC ascribe any weight to extra step of incorporating under the laws of Texas, noting that it was done sixteen days before filing suit.

Uniloc v. Microsoft: The CAFC Rejects the 25 Percent Rule

By Jason Rantanen

Uniloc USA, Inc. v. Microsoft Corp. (Fed. Cir. 2011)
Panel: Rader, Linn (author), Moore

Uniloc v. Microsoft involves a host of issues, although one stands out as particularly noteworthy.  While  "passively tolerat[ing]" the 25 percent 'rule of thumb' (a method for calculating a reasonable royalty for purposes of infringement damages) in past cases, the CAFC held today that the rule "is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation," thus precluding its use for damages calculations.

Uniloc is the owner of Patent No. 5,490,216, an early patent covering a mechanism for combating "casual copying" of software, where users install copies of a software program on multiple computers in violation of applicable software licenses.  In general terms, the patented invention involves the creation of a registration number generated by the software on the user's computer.  The number is sent to the vendor's system, which uses an identical algorithm to create a remote license ID.  If the numbers match when the application boots, the program enters a "use mode;" if they do not, it enters a "demo mode."

In the suit against Microsoft, Uniloc alleged that the Product Activation feature for Microsoft's Word XP, Word 2003, and Windows XP software programs infringed the '216 patent.  A jury agreed, finding that Microsoft not only infringed the patent, but did so willfully.  The jury also rejected Microsoft's invalidity defenses and awarded Uniloc $388 million in damages.  Following the trial, the district court granted Microsoft's motion for JMOL of noninfringement and lack of willfulness (and in the alternative, ordered a new trial on these issues), but denied its request for a JMOL on invalidity.  The court also ordered a new trial on the issue of damages.  On appeal, Uniloc challenged the district court's noninfringement, willfulness, and damages rulings, while Microsoft cross-appealed the denial of its JMOL on invalidity.  The Federal Circuit affirmed the district judge's rulings on willfulness, damages and invalidity, but reversed on the question of infringement, both with respect to JMOL and the grant of a new trial.

Damages
The damages section of the opinion is by far the most significant portion.  At trial, the jury awarded Uniloc $388 million in damages, relying on the testimony of Uniloc's expert, who opined that damages should be $564,946,803 based on a hypothetical negotiation between Uniloc and Microsoft and the Georgia-Pacific factors.  Using an internal Microsoft document relating to the value of product keys, the expert applied the 25 percent "rule of thumb" to the minimum value reported ($10 each), obtaining a value of $2.50 per key.  After applying the Georgia-Pacific factors, which he concluded did not modify the base rate, he multiplied it by the number of new licenses to Office and Windows products, producing the $565 million value.  He confirmed his valuation by "checking" it against the total market value of sales of the Microsoft products (approximately $19 billion, noting that it represented only 2.9% of the gross revenue of the products.   

The 25 Percent Rule: On appeal, the CAFC first rejected the use of the 25 percent rule to calculate patent damages.  "The 25 percent rule of thumb is a tool that has been used to approximate the reasonable royalty rate that the manufacturer of a patented product would be willing to offer to pay to the patentee during a hypothetical negotiation." Slip Op. at 36, citing Robert Goldscheider, John Jarosz and Carla Mulhern, USE OF THE 25 PER CENT RULE IN VALUING IP, 37 les Nouvelles 123, 123 (Dec. 2002).  Under the rule, "licensees pay a royalty rate equivalent to 25 per cent of its expected profits for the product that incorporates the IP at issue." Id., quoting Goldscheider et al. Included in the court's discussion of the rule is an extensive survey of the relevant literature (covering no less than nine articles), as well as an acknowledgement that the "court has passively tolerated its use where its acceptability has not been the focus of the case." Slip Op. at 39.  However, the court recognized that it  never squarely addressed the use of the rule.

Treating the issue as one of first principles, and after considering the relevant Supreme Court caselaw, the CAFC concluded that, as an abstract theory untied to particular factual circumstances of a given case, the 25 percent rule simply cannot be used for damages calculations: 

This court now holds as a matter of Federal Circuit law that the 25 percent rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation. Evidence relying on the 25 percent rule of thumb is thus inadmissible under Daubert and the Federal Rules of Evidence, because it fails to tie a reasonable royalty base to the facts of the case at issue.

Slip Op. at 41.  The court based its reasoning on the Daubert standard for expert testimony, concluding that general theories are only permissible if the expert adequately ties the theory to the specific facts of the case.  Under Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999) and General Electric Co. v. Joiner, 522 US 136 (1997), "one major determinant of whether an expert should be excluded under Daubert is whether he has justified the application of a general theory to the facts of the case."  Slip Op. at 43.

Applying this principle, the CAFC criticized the application of the 25 percent rule because there was no link between the rule and the specific case:

The meaning of these cases is clear: there must be a basis in fact to associate the royalty rates used in prior licenses to the particular hypothetical negotiation at issue in the case. The 25 percent rule of thumb as an abstract and largely theoretical construct fails to satisfy this fundamental requirement. The rule does not say anything about a particular hypothetical negotiation or reasonable royalty involving any particular technology, industry, or party.

Slip Op. at 45. In addition, the court pointed to the lack of testimony by Uniloc's expert suggesting that the starting point of a 25 percent royalty had any relation to the facts of the case, and thus the use of the rule was "arbitrary, unreliable, and irrelevant," failing to pass muster under Daubert and tainting the jury's damages calculation.  Id. at 47.

Entire Market Value Rule: The CAFC also rejected the expert's application of the entire market value rule, which he used as a check on the total damages.  "The entire market value rule allows a patentee to assess damages based on the entire market value of the accused product only where the patented feature creates the 'basis for customer demand' or 'substantially create[s] the value of the component parts.'"  Slip Op. at 48.  Here, however, there was no evidence that the patented component created the basis for customer demand, as required by the rule: "This case provides a good example of the danger of admitting consideration of the entire market value of the accused where the patented component does not create the basis for customer demand."  Slip Op. at 51.

Infringement
In opposing Uniloc's challenge on the issue of infringement, Microsoft argued that several grounds supported affirmance of the district court's grant of JMOL of noninfringement.  The CAFC rejected each argument in turn, concluding that substantial evidence supported the jury's finding of infringement. 

Standard of Review: One issue that sophisticated parties often dispute is the relevant standard that applies when reviewing jury verdicts. This appeal was no different - Microsoft contended that the jury verdict should be reviewed de novo, while Uniloc argued that it should be reviewed for substantial evidence.  The CAFC responded by distinguishing situations where "the parties conceded that under one claim construction there was infringement and under the other there was none, and were arguing only over which claim construction was appropriate." Slip Op. at 15.  In these cases, de novo review applies.  On the other hand, where "the claim construction itself is not contested, but the application of that claim construction to the accused device is," the court applies the substantial evidence standard. Id.

Comment: This distinction reinforces a basic principle of Federal Circuit appellate practice: Parties challenging a jury verdict on the issue of infringement will likely want to frame the dispute on appeal as a question of claim construction; parties defending the verdict will likely want to frame it as a question of application of an accepted construction to the accused product or method.  Of course, whether a party will be able to frame the question in a particular way depends largely on how the issue was set up in the district court - which itself is ideally part of counsel's long term strategic thinking.

Applying this standard, the Federal Circuit concluded that the jury's verdict of infringement was supported by substantial evidence, rejecting Microsoft's arguments to the contrary.  The court also rejected Microsoft's argument that a critical "means-plus-function" limitation should be read narrowly.  To the contrary, the court held, it should be read broadly, applying language from IMS Tech., Inc. v. Haas Automation, Inc., 206 F.3d 1422, 1436 (Fed. Cir. 2000) stating that "when in a claimed 'means' limitation the disclosed physical structure is of little or no importance to the claimed invention, there may be a broader range of equivalent structures than if the physical characteristics of the structure are critical in performing the claimed function." 

Expert Testimony, redux: Also of note is the court's ruling with respect to expert testimony as it pertains to infringment.  Although the district court rejected the testimony of Uniloc's expert as "incomplete, oversimplified and frankly inappropriate," the CAFC concluded that this rejection was improper because the district court had already fulfilled its gatekeeping function under Daubert when it explicitly noted that the expert was "qualified."  Thus, it was up to the jury "to evaluate the weight to be given to the testimony of dueling qualified experts."  This application of Daubert seems to be somewhat in tension with the court's treatment of expert testimony in the damages context, which focused on the content of the testimony, not the qualifications of the person giving it.

Joint Infringement: The CAFC also rejected Microsoft's joint infringement argument.  Rather than implicating joint conduct, the court ruled, Uniloc's claim was structured so as to capture infringement by a single party by focusing on one entity.  "That other parties are necessary to complete the environment in which the claimed element functions does not necessarily divide the infringement between the necessary parties. For example, a claim that reads “An algorithm incorporating means for receiving e-mails” may require two parties to function, but could nevertheless be infringed by the single party who uses an algorithm that receives e-mails."  Slip Op. at 29.

Willful Infringement: On the issue of willfulness, the CAFC continued to apply its objective super-threshold for proving willfulness.  "If the accused infringer's position is susceptible to a reasonable conclusion of no infringement, the first prong of Seagate cannot be met." Slip Op. at 32.  Particularly obtuse is the court's triple-negative articulation of the factual holding: "Uniloc has not presented any evidence at trial or on appeal showing why Microsoft, at the time it began infringement, could not have reasonably determined that [Microsoft's algorithms] did not meet the “licensee unique ID generating means,” “licensee unique ID,” or “registration system”/“mode switching means” limitations."

Presumption of Validity: in addressing Microsoft's cross-appeal of the denial of its motion for JMOL and a new trial on invalidity, the court declined to back away from the "clear and convincing" standard for invalidity.  Rejecting Microsoft's argument that its burden was to show invalidity simply by a preponderance of the evidence - as opposed to clear and convincing evidence - because the prior art reference was not before the PTO, the court continued to apply the higher standard.  "Until changed by the Supreme Court or this court sitting en ban, this is still the law."  Slip Op. at 55.  Applying this standard, the court rejected Microsoft's argument that it was simply practicing the prior art, and thus a finding of infringement necessitated a finding of invalidity. 

Happy New Year!

By Jason Rantanen

The coming year is certain to bring a host of interesting and important changes to patent law that we will continue to write about, and I wish all of Patently-O's readers a prosperous, rewarding, and enjoyable 2011.  Not to be overlooked, though, are a few events that occurred during the past few weeks:

Judge Kathleen O'Malley joins the Federal Circuit: Just a few days after the Senate confirmed her nomination, former Northern District of Ohio Judge Kathleen O'Malley was sworn in by Chief Judge Rader.  She becomes the tenth active non-senior judge on the court.  As an experienced jurist, she will likely have an immediate impact on the court's jurisprudence, although presumably she will not participate in the two currently-pending en banc appeals, TheraSense v. Becton Dickinson and Tivo v. Echostar.

Changes to Federal Rules of Appellate Procedure: On December 1, 2010, three changes to the Federal Rules of Appellate Procedure went into effect.  These changes consisted of adding a definition of the term "state" that includes the District of Columbia and United States commonwealths and territories (Fed. R. App. P. 1) and modifying several rules that referred to Federal Rule of Civil Procedure 58(a)(1).  These rules now refer to Federal Rule of Civil Procedure 58(a) (the separate document judgment rule) in its entirety.   In addition, Fed. R. App. P. 29 now requires more information about who assisted with an amicus brief, including whether a party's counsel authored the brief in whole or in part, whether a party or its counsel contributed money intended to fund preparing or submitting the brief, and the identity of any persons other than the amicus curiae, its members, or its counsel who contributed money that was intended to fund preparing or submitting the brief.  The complete list of changes is available in a letter from Jan Horbaly, the CAFC Clerk of Court.

USPTO Opens Detroit Office: As Dennis predicted earlier, on December 16, Director Kappos announced plans to open the first USPTO satellite office in Detroit, Michigan.  The office will open in 2011, and represents an effort to broaden the PTO's workforce through geographic diversity.  Depending on the success of the Detroit office, the PTO will consider opening additional satellite offices. 

Patent Pilot Program for U.S. District Courts: On December 17, Congress gave its final stamp of approval to H.R. 628, which establishes a pilot program to encourage the enhancement of patent case expertise among district court judges.  Under the Act, at least six district courts will be designated for the program.  Judges in these districts will be able to request to hear cases involving patent issues, although patent cases will still be randomly assigned regardless of whether a judge is so designated.  However, non-designated judges may decline to accept a patent case if it is assigned to them, and should this occur the case will be re-assigned to a designated judge.  In effect, this program will hopefully provide a slight push towards some judges hearing more patent cases than others (and thus developing more expertise in that area), but stops well short of creating a specialized court of trial judges who hear only patent cases (and, unlike the original bill, in the final version there is no money appropriated for specialized training or clerks for designated judges).  The Act also requires periodic reporting of comparison data between designated judges and non-designated judges on issues such as their respective reversal rates by the CAFC.

WiAV Solutions v. Motorola: Clarifying the Meaning of "Exclusive Licensee"

By Jason Rantanen

WiAV Solutions LLC v. Motorola, Inc. (Fed. Cir. 2010)
Panel: Rader, Linn (author), Dyk

WiAV is the purported exclusive licensee of seven patents relating to aspects of signal transmission and data encoding/decoding owned by Mindspeed Technologies, Inc.  In 2009, WiAV sued a set of companies including Motorola, Inc.; Nokia Corporation; Palm, Inc.; and Sony Ericsson Mobile Communications (USA), Inc. for infringement of the Mindspeed patents.  The defendants contended, and the district court agreed, that WiAV lacked constitutional standing to assert the patents because WiAV is not an exclusive licensee of the patents under Textile Productions, Inc. v. Mead. Corp., 134 F.3d 1481 (Fed. Cir. 1998), which they argued holds that a party cannot be an exclusive licensee of a patent when a third party has the right to license the patent. 

In reversing the district court's dismissal, the CAFC rejected this argument, instead holding that "a licensee is an exclusive licensee of a patent if it holds any of the exclusionary rights that accompany a patent."  Slip. Op. at 17 (emphasis added). This decision is in the vein of the court's earlier decision this year in Alfred E. Mann Foundation For Scientific Research v. Cochlear Corp., 604 F.3d 1354, in which it concluded that a licensee is an exclusive licensee of a patent despite retaining the ability to license the patent to settle lawsuits. 

Scope of the Licensing
The licensing rights at issue were held by six third parties, and stemmed from a series of spin-offs and other agreements that occurred as the patents were transferred from company to company. For example, when Rockwell International Corporation, the original owner of the Mindspeed patents, assigned them to Conexant, the second owner, its subsidiary, Rockwell Science Center, received a limited, non-exclusive license to use the patents in connection with its business, along with the right to sublicense to Rockwell International and its "Affiliates," or to transfer the license in connection with the sale of the respective businesses to which the intellectual property rights relate.  The district court found that several of these licensees retained a limited right to license the patents in the field of wireless handsets, and concluded that under Textile Productions, WiAV could thus not be an exclusive licensee of the Mindspeed Patents.

Any Exclusionary Rights
On appeal, the CAFC rejected the argument that, under Textile Productions  "a licensee cannot be an exclusive licensee of a patent if others retain the right to license the patent."  Slip. Op. at 11.  Turning straight to the constitutional analysis, the court held that the standing determination  focuses only on whether a party has any exclusionary right in a patent:

Because the legally protected interests in a patent are the exclusionary rights created by the Patent Act, a party holding one or more of those exclusionary rights—such as an exclusive licensee—suffers a legally cognizable injury when an unauthorized party encroaches upon those rights and therefore has standing to sue. 
…
Thus, the touchstone of constitutional standing in a patent infringement suit is whether a party can establish that it has an exclusionary right in a patent that, if violated by another, would cause the party holding the exclusionary right to suffer legal injury. Contrary to the suggestion of the Defendants, neither this court’s Textile Productions nor Mars decision freed the constitutional standing inquiry from its legal injury mooring.

Slip Op. at 14-15.  Textile Productions, on the other hand, involved only the narrow question of whether a particular type of contract, a requirements contract for a patented product, automatically converts the exclusive supplier into an exclusive licensee.  "Nowhere did the Textile Productions court suggest that a party holding one or more of the exclusionary rights in a patent does not have standing to sue to protect those rights against infringement by an unauthorized third party. Nor is there any indication that the court created a bright-line rule that a party cannot be an exclusive licensee of a patent if others have the right to license the patent."  Slip. Op. at 16.

The CAFC did impose one important limitation on the broad rule for standing: "Because an exclusive licensee derives its standing from the exclusionary rights it holds, it follows that its standing will ordinarily be coterminous with those rights."  Slip Op. at 17. Thus, an exclusive licensee may have standing to sue some parties, but not others; it may also lack standing to sue a party who has the ability to obtain a license from another party with the right to grant it. 

Applying its holding, the court concluded that none of the pre-existing licenses granted the right to license the Defendants to practice the patents in WiAV's field of exclusivity, and thus WiAV possessed constitutional standing for this case. 

Note: WiAV does not disturb the requirement that "[a]n exclusive licenseee generally must join the patent owner to the suit to satisfy prudential standing constraints, i.e., the 'judicially self-imposed limits on the exercise of federal jurisdiction.'" Slip Op. at 14-15, fn. 1.  Here, WiAV had satisfied those concerns by adding Mindspeed to the suit as the "defendant patent owner." 

Judge Kathleen O'Malley Confirmed to the Federal Circuit

By Jason Rantanen

On Wednesday, the Senate confirmed Kathleen McDonald O'Malley to fill the vacancy left by Judge Schall when he took senior status.  Judge O'Malley currently serves as a U.S. District Judge for the Northern District of Ohio, and will be the only sitting Federal Circuit judge to have previously served as a district court judge.   She was nominated for her first judgeship by President Clinton in 1994, prior to which she served in government and private practice.  An earlier Patently-O discussion of Judge O'Malley is available here. 

Two vacancies on the CAFC remain unfilled and although nominees were proposed during the 111th Congress (Jimmie Reyna and Edward DuMont), those nominations were not acted on.  

Prometheus Laboratories v. Mayo: The Broad Scope of Statutory Subject Matter

By Jason Rantanen

Prometheus Laboratories, Inc. v. Mayo Collaborative Services (Fed. Cir. 2010)
Panel: Rader, Lourie (author), Bryson

Last Friday, the Federal Circuit released its second noteworthy post-Bilski decision (the first being Research Corp v. Microsoft).  The opinion, Prometheus v. Mayo, issued following a grant-vacate-remand order from the Supreme Court instructing the CAFC to revisit its original decision in light of Bilski.  Despite this procedural posture, however, the new opinion is quite similar to the old, arriving at the same conclusion through essentially the same reasoning.   

Prometheus initially came to the Federal Circuit following a district court grant of summary judgment of invalidity under § 101 (lack of patentable subject matter).  After the CAFC reversed the ruling of invalidity using its "machine-or-transformation" test, Mayo sought review by the Supreme Court.  The Court granted certiorari, vacated the CAFC decision, and remanded for consideration in light of its Bilski opinion.  Earlier Patently-O commentary includes a summary of the original Federal Circuit opinion and a discussion of the remand.

The patents-in-suit claim a method for determining whether a patient has received a therapeutically efficacious amount of drugs such as 6-mercaptopurine ("6-MP") and azthiopurine ("AZA"), which are used to treat inflammatory bowel diseases but can produce toxic side effects.  In the human body, these drugs metabolize into 6-MP metabolites, including 6-methylmercaptopurine ("6-MMP") and 6-thioguanine ("6-TG").  By administering the drug, measuring the subject's levels of 6-MMP and 6-TG and comparing them to pre-determined levels, toxicity can be minimized and efficacy maximized. 

Claim 1 of Patent No. 6,355,623 is representative:

1. A method of optimizing therapeutic efficacy for treatment of an immune-mediated gastrointestinal disorder, comprising:
    (a) administering a drug providing 6-thioguanine to a subject having said im-mune-mediated gastrointestinal disorder; and
    (b) determining the level of 6-thioguanine in said subject having said immune-mediated gastrointestinal disorder,
    wherein the level of 6-thioguanine less than about 230 pmol per 8x108 red blood cells indicates a need to increase the amount of said drug subsequently administered to said subject and
    wherein the level of 6-thioguanine greater than about 400 pmol per 8x108 red blood cells indicates a need to decrease the amount of said drug subsequently administered to said subject.

Although similar in most respects, some claims of the second patent-in-suit, No. 6,680,302, dispense with the "administering" step.

The Patents Do Not Claim a Physical Phenomena
On remand, the CAFC again rejected Mayo's argument that the '623 and '302 patents claim a "natural phenomenon."  In seeking a judgment of invalidity under Section 101, Mayo contended (and the district court agreed) that the "administering" and "determining" steps are merely necessary data-gathering steps for the use of the correlations between 6-TG and 6-MMP and therapeutic efficacy or toxicity in patients.  Because these correlations are simply natural phenomena, Mayo reasoned, they were unpatentable.

As before, the Federal Circuit disagreed, noting that Bilski provides a broad - although not unlimited - scope for patent protection, and “an application of a law of nature or mathematical formula to a known structure or process may well be deserving of patent protection.”  Slip. Op. at 12, quoting Bilski, 130 S.Ct. at 3230.  Furthermore, the court stated, neither the Supreme Court's order to vacate and remand the original Prometheus decision nor Bilski dictates a wholly different analysis or different result.  

The crux of the CAFC's determination that the asserted claims recite a patent-eligible application of naturally occurring correlations between metabolite levels and efficacy or toxicity as opposed to the natural correlation itself rests on the specific treatment steps recited by the claims: the "administering" step and the "determining" step.  "The inventive nature of the claimed methods stems not from preemption of all use of these natural processes, but from the application of a natural phenomenon in a series of steps comprising particular methods of treatment." Slip. Op. at 15-16.

In support of its conclusion, the court reiterated its earlier determination that the treatment methods in Prometheus's patents satisfy the "machine-or-transformation test.  Although this is not the exclusive test, post-Bilski, it nevertheless provides important clues to subject matter patentabilty.  In applying the machine-or-transformation framework, the court specifically rejected Mayo's argument that the disputed claims simply claim natural correlations and the associated data-gathering steps, broadly stating that the asserted claims are "claims to methods of treatment, which are always transformative when one of a defined group of drugs is administered to the body to ameliorate the effects of an undesired condition."  Slip Op. at 17.  Even leaving out the administration step does not make the claims unpatentable, as the CAFC also found the "determining" step to be transformative because it involves "[s]ome form of manipulation, such as the high pressure liquid chromatography method specified in several of the asserted dependent claims or some other modification of the substances to be measured, [which] is necessary to extract the metabolites from a bodily sample and determine their concentration."  Id. at 18.

In reaching this conclusion, however, the court was forced to distinguish its earlier decision In re Grams, 888 F.2d 835 (Fed. Cir. 1989), which similarly claimed a process that involved "(1) performing a clinical test on individuals and (2) based on the data from that test, determining if an abnormality existed and determining possible causes of any abnormality by using an algorithm."  Id. at 20.   Unlike the claims in Grams - which the CAFC found unpatentable "because the tests were just to 'obtain data'" (Slip Op. at 20) - the claims of the Prometheus patents "require the performing of clinical tests on individuals that were transformative." 

Mental Steps
In addition to its overarching analysis of the subject matter issue, the opinion also includes an interesting discussion of the use of mental steps in patent claims.  Although the CAFC agreed that the final "wherein" clauses are mental steps, "A subsequent mental step does not, by itself, negate the transformative nature of prior steps. Thus, when viewed in the proper context, the final step of providing a warning based on the results of the prior steps does not detract from the patentability of Prometheus’s claimed methods as a whole." Slip Op. at 21. Because no claim in the Prometheus patents claims only mental steps, "contrary to Mayo’s assertions, a physician who only evaluates the result of the claimed methods, without carrying out the administering and/or determining steps that are present in all the claims, cannot infringe any claim that requires such steps." Id.

Additional Commentary
In addition to an extensive discussion about the decision in response to Dennis's post on Sunday, other sites commenting on the decision include:

• Patent Docs
• patents4life
• IP Watchdog
• Chris Holman's IP Blog
• Hal Weger of Foley has suggested that another grant of certiorari may be down the road, given the opinion's refusal to discuss a three-Justice dissent from the dismissal of certiorari in Lab. Corp., 548 U.S. 124, that was cited with approval by five Justices in two concurrences in Bilski.

Akamai v. Limelight: Joint Infringement Requires an Agency Relationship or a Contractual Obligation

By Jason Rantanen and Dennis Crouch

Akamai Technologies, Inc. v. Limelight Networks, Inc. (Fed. Cir. 2010)
Panel: Rader, Linn (author), Prost

Three years ago, in BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007), the Federal Circuit sharply limited the ability of patent holders to assert claims of joint infringement.  The BMC decision was further bolstered by Muniauction, Inc. v. Thomson Corp. and I-Deal (Fed. Cir. 2008). Akamai v. Limelight expands on the "control or direct" rule announced in BMC and Muniauction, explaining that joint infringement requires an agency relationship or a contractual obligation to carry out the relevant steps. 

Akamai's Claim of Joint Infringement
In order to win a patent infringement case, a patentee must prove that a single entity practiced every element (either literally or by equivalents) of at least one valid, enforceable claim. Joint infringement issues can arise when a patent holder asserts method claims over activities whose steps are not carried out by a single party.  For example, if a patent claims a method involving performing steps A, B, and C, the patent holder may need to argue joint infringement (as opposed to straightforward direct infringement) if steps A and B are performed by one party and step C is performed by a second party. 

In Akamai, while the accused party (Limelight) performed the majority of the steps of the asserted claims, at least one of the steps of each claim was performed by its customers.  The patent, No. 6,108,703, is directed to an improved method for storing web page content.  Conventionally, the entirety of a web page, including both the page itself and embedded content (such as graphics) is stored on a single server, or mirrored in its entirety across multiple servers.  The patents-in-suit claim a new approach, which involves storing only the embedded objects on mirrored servers (called a "Content Delivery Network," or "CDN"), while having the webpage itself continue to reside on the content provider's servers.  In order to make this system work, the claims further require that the object URLs be "tagged" to resolve to the CDN. 

Daniel Lewin and his adviser Thomas Leighton devised these methods (or algorithms) while at MIT where Leighton was the head of MIT's Computer Science and Artificial Intelligence Laboratory.  The pair founded Akamai, and their invention continues to serve as a basis for the company's core business.  Lewin was killed aboard American Airlines flight 11 when it crashed into the north tower of the World Trade Center on September 11, 2001.

Limelight, Akamai's direct competitor in the CDN business, performed most of the claimed steps but had its customers (companies such as Netflix) tag the URLs.  Because some of the steps were performed by Limelight and some by its customers, Akamai relied on a theory of joint liability, arguing that Limelight controls or directs the activities of its customers.  At trial, the jury sided with Akamai and awarded over $40 million in lost-profit-damages. The district court rejected the jury verdict and supplemented its own non-infringement judgment – holding that there was "no material difference between Limelight's interaction with his customers and that of Thomson in Muniauction."

On appeal, Akamai contended that substantial evidence supported the infringement finding, arguing that Limelight "(1) creates and assigns a unique hostname for the content provider; (2) provides explicit step-by-step instructions to perform the tagging and serving claim steps; (3) offers technical assistance to help content providers with their performance of the claim step; and (4) contractually requires content providers to perform the tagging and serving claim steps if they utilize the Limelight service."  Slip Op at 11. 

Important holdings
In affirming the district court's judgment of noninfringement, the CAFC expanded on its ruling in BMC that "joint liability may be found when one party 'control[s] or direct[s]' the activities of another party."  Slip Op. at 9.  After noting the foundational nature of this standard, the Akamai panel further held that "what is essential is not merely the exercise of control or the providing of instructions, but whether the relationship between the parties is such that acts of one may be attributed to the other."   Id. at 12.  The court interpreted this as requiring either an agency relationship or a contractual obligation: "as a matter of Federal Circuit law that there can only be joint infringement when there is an agency relationship between the parties who perform the method steps or when one party is contractually obligated to the other to perform the steps."  Slip Op. at 14.

Analyzing the issue as a question of agency law, the CAFC concluded that no substantial evidence supported a finding that Limelight's customers perform any of the steps of the claimed method as agents for Limelight.  (Citing the Restatement (3rd) of Agency §1.01). The court also rejected Akamai's theory that Limelight's customers are contractually required to perform the tagging step.  Rather, the court stated, the contract does not obligate the customers to perform any of the method steps; instead, it "merely explains that the customer will have to perform the steps if it decides to take advantage of Limelight's service."  Slip Op. at 16.

Note: The court repeated the warning it set forth in BMC Resources, 498 F.3d at 1381, that concerns about the difficulty of proving infringement of claims that must be infringed by multiple parties "by proper claim drafting.  A patentee can usually structure a claim to capture infringement by a single party."  Slip. Op. at 17 (quoting BMC Resources).  Failing this, the court suggested (citing Mark Lemley's Divided Infringement article) that patentees may be able to correct a claim by seeking a reissue patent.

Claim Construction
Akamai also challenged the district court's construction of two claim terms in related patents, contending that both constructions imported limitations from the specification into the claims.  In a fact-intensive analysis, the CAFC rejected Akamai's arguments, concluding that the district court correctly interpreted the disputed terms given the treatment of the invention in the specification and the lack of any contrary evidence in the prosecution history. 

The Federal Circuit's Use of Legal Scholarship

By Jason Rantanen

Professors Lee Petherbridge and David Schwartz have released a draft of their new study on the use of legal scholarship by the Federal Circuit.  In the paper, the authors question the conventional wisdom that the Federal Circuit is less likely than other circuit courts of appeals to use legal scholarship in its decision making, and conclude that this oft-repeated claim is contrary to the empirical evidence. 

Methodology and Dataset:  The authors conducted a search of all the reported opinions for the United States circuit courts of appeals for the years 1990-2008 using a mechanical approach to identify each opinion citing to legal scholarship at least once, followed by a custom-made computer program that identified individual citations to legal scholarship. 

Findings: Contrary to result expected under the conventional wisdom, the authors found that the Federal Circuit's use of legal scholarship is similar to that of the regional circuits.  Although it falls on the lower end of the spectrum of judicial citations, the overall frequency with which the CAFC cites legal scholarship is within the range expressed by the regional circuits, and the median frequency of citations per judge falls around the middle of the regional circuits.

The authors also discovered that, unlike some of the high-frequency-of-citation regional circuits, the Federal Circuit lacks any legal scholarship "super citers," such as Judges Posner, Easterbrook, Calibresi, Becker, and Kozinski, which may explain why its overall citation frequency falls on the lower end of the regional circuits.   

Implications: Based on their empirical analysis, the authors conclude that the "claim that the Federal Circuit does not use legal scholarship as much as it should because it does not use it as often as the regional circuit courts of appeals is essentially eviscerated."  Thus, the authors recommend that future scholarship should focus on the merits of the Federal Circuit's use of scholarship, asking questions about when and how the court uses legal scholarship.

The authors also suggest that adding or encouraging an existing judge to become a "super citer" might be beneficial.  They reason that having a small number of judges who regularly study and use legal scholarship allows that scholarship to make its way into the jurisprudence at a measured rate, where it can be considered by the remaining judges who rely on more traditional tools for developing the law.  This mechanism encourages jurisprudential innovation while preventing sudden dramatic shifts. 

Read the Paper: Download here.

In re Vistaprint Ltd.: Venue Transfer Denied

By Jason Rantanen

In re Vistaprint Ltd. (Fed. Cir. 2010)
Panel: Gajarsa, Schall (author), and Moore

In a counterpoint to its recent decision in In re Acer, this morning the Federal Circuit denied a request for a writ of mandamus seeking transfer of venue out of the Eastern District of Texas.  The underlying action was bought by ColorQuick, LLC, which holds a patent relating to the preparation of production data for printing, against Vistaprint Limited and OfficeMax Incorporated.  As in Acer, none of the parties resided in Texas: Vistaprint, a foreign corporation, has a wholly-owned subsidiary in Massachusetts; OfficeMax is a Delaware corporation with its principal place of business in Illinois; and ColorQuick is a New Jersey corporation.  Both the panel and author in this appeal were identical to the panel and author that granted the writ in In re Acer.

In denying the request for a writ, the CAFC acknowledged the lack of residency, but ruled that the district court did not abuse its discretion in denying transfer.  The panel first noted that although a trial court has broad discretion in transfer decisions pursuant to 28 U.S.C. § 1404(a), "that is not the same as saying that it may accord weight simply as it pleases."  Slip Op. at 4.  Applying that standard, the panel concluded the district court's weighing of factors in this case did not amount to a "patently erroneous result."  Id. (quoting In re Volkswagen of Am., Inc., 545 F.3d 304, 310 (5th Cir. 2008) (en banc)). Specifically, the CAFC concluded that the district court had not abused its discretion in weighing two factors relating to judicial economy: that the trial court had gained substantial experience in construing the claims of the same patent during a prior litigation and that there was a related case currently pending before the same court.

The CAFC also rejected the petitioners' argument that it is always improper for a district court to deny transfer based on judicial economy when all of the convenience factors clearly favor transfer.  While the court noted the importance of the convenience factors, it also recognized that "§ 1404(a) commits the balancing determination to the sound discretion of the trial court based not on per se rules but rather on an 'individualized, case-by-case consideration of convenience and fairness.'"  Slip Op. at 6-7 (quoting Van Dusen v. Barrack, 376 U.S. 612, 622 (1964)).  In this specific case, the CAFC could not conclude that "the trial court's balancing was so unreasonable as to warrant the extraordinary relief of mandamus."  Id. at 8.

Note: The opinion's final footnote appears to summarize the panel's overarching view on mandamus petitions directed to the venue transfer issue.  It states:

Our holding today does not mean that, once a patent is litigated in a particular venue the patent owner will necessarily have a free pass to maintain all future litigation involving that patent in that venue. However, where, as here, the trial court performed a detailed analysis explaining that it is very familiar with the only asserted patent and the related technology, and where there is a co-pending litigation before the trial court involving the same patent-in-suit, and pertaining to the same underly-ing technology and accusing similar services, we cannot say the trial court clearly abused its discretion in denying transfer.

Research Corp. v. Microsoft: Section 101 and Process Claims

By Jason Rantanen

There are three articulated exceptions to the scope of patentable subject matter under 35 U.S.C. § 101: laws of nature, physical phenomena, and abstract ideas.  Research Corp. v. Microsoft places a high hurdle in front of challengers who seek to invalidate process patents on the third ground. 

Research Corp. Technologies v. Microsoft Corp. (Fed. Cir. 2010)
Panel: Rader (author), Newman, and Plager

Research Corporation ("RCT") owns several patents relating to digital image halftoning, which is the process of generating electronic display and print images using only a small number of pixel colors (ex.: red, blue and green in the case of color displays) while appearing to present many more colors and shades than were actually used.  Four related patents are relevant to this summary: Nos. 5,111,310, 5,341,228, 5,477,305, and 5,726,772.  The applications for the '310 and '228 patents (a continuation-in-part of the '310 patent) were filed before December 4, 1991; the remaining patents are continuations of the '228 patent and claim priority to the earlier filing dates. 

RCT brought an infringement action against Microsoft based on these patents; in response, Microsoft asserted, and the district court initially concluded, that the patents were unenforceable due to inequitable conduct, invalid and not infringed.  The Federal Circuit reversed that determination in 2008.  Microsoft subsequently sought summary judgment against the '310 and '228 patents on Section 101 patentable subject matter grounds, and asserted that the claims of the '772 patent were not entitled to the earlier priority date, thus rendering them anticipated.  The district court granted Microsoft's motions, and subsequently held that the only remaining claim, claim 29 of the '305 patent, also lacked entitlement to the earlier priority date.  Based on these ruling, the parties stipulated to a dismissal of the suit and RCT appealed.

Section 101 and Process Claims
In reversing the district court's ruling that the '310 and '228 patents failed to satisfy Section 101, the Federal Circuit identified a set of considerations that can be applied when assessing the question of abstractness.  Drawing upon the Supreme Court's precedent in this area, including its recent decision In re Bilski, the opinion first reiterates that there are only three articulated exceptions to subject matter eligibility: "laws of nature, physical phenomena, and abstract ideas." 

Focusing on the category of abstract ideas, the court noted the Supreme Court's admonition in Bilski not to provide a rigid formula or definition for abstractness.  Rather, "the Supreme Court invited this court to develop 'other limiting criteria that further the purpose of the Patent Act and are not inconsistent with its text.'" Slip Op. at 14.  With that guidance, the panel concluded that it perceived nothing abstract in the subject matter of the processes claimed in the '310 and '228 patents.  Specifically, the court observed that:

• "The invention presents functional and palpable applications in the field of computer technology";
• Some claims in the patents require physical components;
• "[I]nventions with specific applications or improvements to technologies in the marketplace are not likely to be so abstract that they override the statutory language and framework of the Patent Act"; and
• The incorporation of algorithms and formulas does not prevent patent eligibility.

Nevertheless, while finding these factors met in the instant case, the panel further noted that its analysis was limited to the context of Section 101, which provides only a coarse filter.  Abstractness challenges can also be brought against specific claims under Section 112 even if the requirements of Section 101 are met.

Comment: The court's discussion of Section 101 suggests that the issue of patentable subject matter should be analyzed with respect to the patent as a whole; in contrast, Section 112 challenges are analyzed on a per-claim basis.

Burden of Proof for Establishing Priority
In addressing the district court's ruling that the asserted claims of the '772 and '305 patents were not entitled to claim priority to the '310 and '228 filing dates, the opinion reinforced the court's prior ruling that the patent holder bears the burden of establishing priority.  As the court held, although a patent challenger has the burden of going forward with invalidating prior art, once it has done so the burden shifts to the patent holder.  Thus, in an instance where the patent holder attempts to defeat the assertion of invalidity by claiming priority to an earlier application, the patent holder bears the burden of proving the entitlement to priority - including that the claims of the earlier patent are supported by the written description of the earlier specification.

Note: The '772 and '305 patents shared the same specification as the earlier '305 and '228 patents.  If the relevant claims had been contained in the '305 or '228 patents, Microsoft would have had the burden of proving lack of written description, as opposed to the burden resting with RCT.  Thus, the fact that the claims were part of a continuation was highly significant with respect to the allocation of the burden.

Comment: A related issue is who bears the burden of proof in the context of claims to a pre-filing conception or reduction to practice date. Although not mandated by the text of the opinion, which specifically refers to the burden to establish "an earlier filing date," the court's analysis could be read to support the conclusion that the patent holder bears the burden of proof in this situation as well.

After dispensing with RCT's challenge to the district court's allocation of burden, the panel proceeded to address the priority claims on the merits.  With respect to the '772 claims, the panel agreed with the district court, concluding that they were unsupported by the prior disclosure.  The panel did reverse on the '305 claim, however, ruling that to satisfy the written description requirement for apparatus claims, the patent need not disclose every method of making the apparatus. 

Global-Tech v. SEB: Amicus Briefs

By Jason Rantanen

Several amicus briefs supporting Global-Tech/neither party were filed yesterday.  Among them is a brief by 41 Law, Economics, and Business Professors in support of the Petitioner that parallels a similar brief filed in support of the petition for certiorari.  The merits brief, coordinated by Mark Lemley, Timothy Holbrook, and Lynda Oswald, argues that the Court should reject the "deliberate indifference" standard articulated by the Federal Circuit in SEB, and instead hold that inducement require that the defendant "be aware of a patent and encourage an act that it knows or should know would infringe that patent."  In anticipation of an argument that may be made in support of the Respondent, the brief also asserts that a strict liability standard for inducement would be disastrous.  The brief can be directly downloaded here: Download 10-6, tsac, 41 Law, Economics, and Business Professors

The full set of amicus briefs is available on the American Bar Association Website.  It includes briefs from:

• The Business Software Alliance in Support of Petitioner
• Cisco Systems, Inc., Dell, Inc., and Intel Corporation in Support of Reversal
• The Clearinghouse Association and Securities Industry and Financial Markets Association in Support of Petitioner
• Comcast Corporation, Facebook, Inc., Intuit Inc., Microsoft Corporation, Netflix, Inc., Overstock.Com, Inc., and SAP America, Inc. in Support of Petitioner
• Google, Inc., in Support of Petitioner
• NewEgg, Inc., in Support of Petitioner
• The Software Freedom Law Center in Support of Petitioner
• Yahoo! Inc., Ebay Inc., Electronic Arts Inc., General Motors LLC, Hewlett Packard Company, McAfee, Inc., Red Hat, Inc., and Symantec Corporation in Support of Petitioner
• The Federal Circuit Bar Association in Support of Neither Party
• The Intellectual Property Owners Association in Support of Neither Party

In re Acer: Transfer Out of the Eastern District of Texas

By Jason Rantanen

In re Acer America Corporation (Fed. Cir. 2010)
Panel: Gajarsa, Schall (Author), and Moore

In 2008, MedioStream, a company headquartered in the Northern District of California, brought a patent infringement suit in the Eastern District of Texas against twelve hardware and software companies, five of which are also headquartered in the Northern District of California.  The defendants moved to transfer venue to the Northern District of California pursuant to 28 U.S.C. 1404(a), which authorizes transfer "[f]or the convenience of parties and witnesses, in the interest of justice."  The district court denied the motion, primarily because one of the defendants, Dell, Inc., is headquarted in Round Rock, Texas, relatively close to (albeit outside) the Eastern District of Texas. The defendants petitioned the Federal Circuit for a writ of mandamus. 

On appeal, the Federal Circuit agreed with the Petitioners, concluding in a precedential opinion that the district court abused its discretion in denying the request to transfer venue.  Particularly important in the panel's analysis was the fact that a substantial number of party witnesses reside in or near the Northern District of California, and requiring them to travel to the Eastern District of Texas would result in substantial expenses for airfare, meals, lodging, and the loss of productivity from time spent away from work, as well as the personal costs imposed on the witnesses.  While it was possible that more than one Dell employee might testify, that number was likely to be insignificant in contrast with the substantial number of party witnesses that would be required to travel to Texas.  Similarly weighing in favor of transfer to California was the venue's ability to compel testmony through subspoena power, the presence of a significant portion of the evidence in the Northern District of Caliornia (and none in the Eastern District of Texas), and the local interest of the Northern District flowing from the residence of many of the parties in that district.

Note: Last month, the court granted a temporary stay of the district court proceedings.

Global-Tech v. SEB: Petitioner's Merits Brief

By Jason Rantanen

On Monday, Petitioner Global-Tech filed its brief in the inducement of infringement case pending before the Supreme Court.  The complete brief can be downloaded from the American Bar Association's website.  The arguments are summarized below:

35 U.S.C. 271(b) Requires the State of Mind of "Purposeful, Culpable Expression and Conduct" to Encourage an Infringement.

Global-Tech takes the position that inducement of patent infringement under 271(b) requires "'purposeful, culpable expression and conduct' to encourage an infringement."  In other words, the accused party must possess the "purpose" of causing the infringement of a patent - even knowledge of infringement is insufficient.  In support of this position, Global-Tech relies heavily on MGM Studies, Inc. v. Grokster, Ltd., 545 U.S. 913 (2005), a copyright inducement case in which the Court discussed 271(b) and described the inducement rule as premising liability on "purposeful, culpable expression and conduct."  Global-Tech buttresses its argument by asserting that a lower standard would make 271(b) so broad as to render 271(c) (contributory infringement) insignificant and, furthermore, is supported by the legislative history.

Global-Tech also raises two policy considerations.  First, it delves into the issue of causation, suggesting that because 271(b) does not contain a causation requirement, Congress must have intended to for it to apply only to "morally culpable conduct" - which Global-Tech equates with purpose.  Second, it argues that (absent clear Congressional intent) there is a presumption that statutes are meant to only regulate conduct outside the United States to the extent necessary to further important U.S. interests, and that anything less than a "purposeful, culpable expression and conduct" standard is unnecessary to further U.S. interests. 

The "Deliberate Indifference" Standard is Wrong

In addition to advancing its "purposeful, culpable expression and conduct" approach to inducement, Global-Tech also argues that the Federal Circuit's "deliberate indifference to a known risk" standard is lower than knowledge, recklessness, and even negligence.  Global-Tech rests this assertion on the proposition that because the Federal Circuit's articulation of the "deliberate indifference" standard did not specify the degree of risk, it thus encompasses even minimal risks of infringement.  Global-Tech further argues that the risk in this case was of the minimal variety because it did not know about the patent and because of the uncertainties of both claim construction and infringement proceedings.

Global-Tech raises two additional arguments.  After asserting that aiding and abetting, a related tort doctrine, requires knowledge of the actor's participation in an underlying crime or tort, it then contends that the use of "actively," "induces," and "infringement" in 271(b) signals that the standard must be higher than that of aiding and abetting (i.e.: purpose).  From a policy standpoint, Global-Tech criticizes the "deliberate indifference" standard as being quite unclear - and thus placing a burden on competition and innovation.

Global-Tech concludes by asserting that if the Court holds that 271(b) requires not just purposeful, culpable conduct or knowledge, but also recklessness, it should reverse and remand.

An Objective View of Fault in Patent Infringement

By Jason Rantanen

In GlobalTech v. SEB, the Supreme Court is addressing the question "[w]hether the legal standard for the state of mind element of a claim for actively inducing infringement under 35 U.S.C. § 271(b) is "deliberate indifference of a known risk" that an infringement may occur...or instead "purposeful, culpable expression and conduct" to encourage an infringement.”  Yet, as I suggested last month, perhaps framing the issue as an involving an inquiry into the subjective state of mind of an accused inducer isn't the best approach.  Instead, I propose that an analysis akin to civil recklessness - asking whether a high risk of infringement of a valid patent would have been obvious to a reasonable person in the accused party's position - is the better way to view the fault component of indirect infringement.  

That's the central argument of a draft article that I've prepared, and I'm interested in any feedback readers might have.  The abstract is provided below; the complete paper is available here. 

Unlike direct patent infringement (a strict liability claim), indirect and willful infringement require the patent holder to demonstrate fault on the part of the accused infringer. The conventional approach to the fault elements of these doctrines views them as involving a subjective inquiry into the accused party’s state of mind. Inducement of infringement, for example, requires that the alleged infringer possess mental culpability for it to be found liable. The question presented by the Supreme Court’s recent grant of certiorari in Global-Tech v. SEB is the quintessential illustration of this conventional view, asking whether the “state of mind” of the accused party is one of “deliberate indifference” or “purpose.” This mens rea-based approach to fault is likely the product of indirect infringement’s origins as an adaptation of the tort theory of aiding and abetting, an intentional tort.

This paper asserts that this conventional view of fault for indirect infringement is inherently flawed, and is largely nonsensical in the modern context in which indirect infringement is assessed. In large part this is because fault in patent infringement, unlike the tort tradition in which it was developed, involves assessment of particular legal – as opposed to factual – consequences, consequences that are both rarely certain and unlikely to ever be desired.

Rather than continuing to view the fault elements of these doctrines as if they were traditional intentional torts, this paper proposes that the law should instead apply an objective test more closely tailored to the specific context in which patent infringement arises. Specifically, it suggests that a better approach is to conceive of the fault element as requiring an objective inquiry into whether a high risk of patent infringement would have been obvious to another in the accused party’s position. In addition to providing a more accurate and usable articulation of the fault element, viewing the question in terms of risk enables finer tuning of the doctrine when seeking optimal deterrence effects. Furthermore, this change would parallel recent shifts in the approach to fault in the context of willful infringement, and would be consistent with the actual normative standard being applied by courts.

 

Nuance Communications v. Abbyy Software

By Jason Rantanen

Cases involving foreign parties often raise complex procedural issues.  In this case, two of the defendants - a Russian corporation and a Cypriot corproration - argued that the district court lacked personal jurisdiction and that the plaintiff's attempts at service were insufficient.

Nuance Communications, Inc. v. Abbyy Software House (Fed. Cir. 2010)
Panel: Rader (author) Newman, Prost

In 2008, Nuance Communications sued Abbyy USA Software House, Abbyy Production, and Abbyy Software for patent infringement.  Abbyy Production, a corporation organized under the laws of the Russian Federation, and Abbyy Software, a Cypriot corporation, filed a motion to dismiss for lack of personal jurisdiction and improper service of process.  In a short order, the district court granted the motion and declined to consider Nuance's request for jurisdictional discovery by not addressing that issue.

On appeal, the Federal Circuit reversed the district court's ruling.  On the question of personal jurisdiction, the panel first noted that because this is a patent case, Federal Circuit precedent applies rather than that of the regional circuit.  The overarching analysis, however, focused on the traditional "minimum contacts" approach: "whether the defendant purposefully established 'minimum contacts' in the forum state."  Because the question in this case was one of specific jurisdiction, it thus required examining:

(1) whether the defendant purposefully directed activities at residents of the forum; (2) whether the claim arises out of or relates to those activities; and (3) whether assertion of personal jurisdiction is reasonable and fair.

Slip. Op. at 8.  Applying this test, the majority concluded that the district court had erred in dismissing Abbyy Production and Abbyy Software.  With respect to Abbyy Production, the appellate court noted that the defendant had engaged in a variety of activities directed at California, including its distribution of the allegedly infringing software to Abbyy USA, a California entity.  These activities also satisfied the second prong, as Nuance alleged in its Complaint that Abbyy Production's importation of the software into California infringed and induced infringement of the patents-in-suit.  The panel further found that the third prong was met, noting that even beyond the fact that Abbyy Production purposefully targeted activities at the forum state, it and Abbyy USA operated under a shared management team and were represented by the same counsel.

The panel declined to conduct a similar analysis for Abbyy Software, concluding that the extent of its involvement in sales of the accused product was uncertain on the facts before the court.  Consequently, the court remanded for additional jurisdictional discovery.

The Federal Circuit also reversed the dismissal based on improper service of process.  After a lengthy discussion of the applicability of Hague Convention procedures to service of process on corporations in the Russian Federation, the panel declined to opine on whether personal service on corporations was permissible in this case.  Rather, the court held that permitting substituted service under Federal Rule of Civil Procedure 4(f)(3) was called for here, and service on Abbyy USA would be sufficient to satisfy constitutional notions of due process for service on Abbyy Production. 

Note: The panel also reversed the district court's sua sponte dismissal of Abbyy Software for improper service of process, noting that the court lacked authority to do so because Abbyy Software had waived the objection.

Liability for Future Indirect Infringement

By Jason Rantanen

In an earlier post, I summarized the Federal Circuit's affirmance of a preliminary injunction prohibiting Apotex from marketing its generic version of AstraZeneca's budesonide in AstraZeneca LP v. Apotex, Inc. 

The majority's discussion of inducement of infringement in this case is particularly interesting because it deals with inducement of infringement in the context of future acts, as opposed to damages for past inducement - and when dealing with future infringement, it's unclear whether an intent element should apply to indirect infringement at all.

Apotex Had Specific Intent to Cause Infringement
In its opinion affirming the district court's preliminary finding of inducement, the Federal Circuit rejected Apotex's argument that it lacked specific intent to cause infringement, concluding that Apotex knew about potential infringement problems posed by its label but nevertheless decided to proceed nonetheless.  Similarly unpersuasive to the court was Apotex's argument that it lacked specific intent because the FDA required it to include the pivotal titration language.  The majority pointed out that Apotex had a variety of options besides proceeding in the face of a risk of an infringement suit, including waiting until the patents expire, challenging infringement and validity, and formally appealing the FDA's denial of Apotex's proposed labeling amendment.  Given these circumstances, the court concluded that Apotex had the necessary specific intent to cause inducement.

Is Intent to Cause Infringement Even Relevant When Dealing With the Future?
The court's ruling, however, could be supported in another way: by concluding that inducement with respect to future acts of infringement does not require the patentee to establish that the accused party posessed "specific intent" to infringe the patent.   This is because when dealing with the future, there will necessarily be a court finding that the relevant third party conduct infringes. Inherent in the court's determination is the conclusion that once-daily use of Apotex's product - the use that the court concluded would result from Apotex's label - infringes AstraZeneca's patents.   In other words, once the court made this determination, AstraZeneca conclusively knew¹ that patients taking its medication in a manner that it intended (i.e.: once daily) would infringe the method claims, and therefore continuing to engage in that conduct would satisfy the requrements of specific intent.  That Apotex may not want to infringe the patents is beside the point: its knowledge that the third party's conduct infringes, coupled with an intent to cause that conduct, is all that is required for this element of inducement, and for future acts those requirements would automatically be met. 

I'm not the first to identify this issue - Professor Timothy Holbrook made it few years back as well.  See Timothy Holbrook, The Intent Element of Induced Infringement, 22 SANTA CLARA COMPUTER & HIGH TECH. L.J. 399, 406 (2006).  Nevertheless, this is an instance where the argument that inducement of future infringement does not require the patent holder to prove specific intent to infringe could have been raised, and the parties apparently did not.

¹ Note that this case involved a preliminary injunction, and thus the court's findings were necessarily non-final.  Thus one could argue that Apotex did not "know" that the future conduct would infringe despite the district court's preliminary determination of infringement because it could be subject to later change.   However, as in many pharmaceutical patent cases, the lower court's determination was made following substantial briefing and argument (along with a five-day hearing), and its reasoning was affirmed on appeal.  Furthermore, even in the preliminary injunction context, the focus should not be on the question of what Apotex thought in the past about infringement, but rather whether it would be substantially certain that the third party conduct would infringe in the future - an analysis that collapses into the district court's determination on the question of infringement.

Final Draft of ACTA Released

By Jason Rantanen

Yesterday, the negotiating parties (which include the United States) released the final draft of the Anti-Counterfeiting Trade Agreement (ACTA), a document that purports to combat the proliferation of pirated and counterfeit goods.  The development of this Agreement has been subject to considerable controversy, in large part due to the secretive nature of its negotiation, which took place outside conventional International IP bodies such as TRIPS and WIPO.  The Electronic Frontier Foundation, for example, has written extensively about the subject, as has Michael Geist. 

In its final state, ACTA relates primarily to copyright and trademark infringement, and expressly disclaims application to patent law in several sections.  Nevertheless, everyone interested in intellectual property law issues should give it a read (and at only 24 pages long it's a surprisingly concise document), as within the area of trademark and copyright infringement the scope of ACTA is very broad: despite its characterization as a "Trade Agreement," it covers the enforcement of IP rights in the domestic civil, criminal, and digital spheres in addition to providing for border control measures, 

Although ACTA generally tracks existing U.S. law on copyright and trademark infringement, the Agreement has a clear pro-rights holder slant.  For instance, provisions on discovery discuss only the rights of the party asserting the infringement claim, and do not require similar rights on the part of the alleged infringer.  Readers may also want to pay particular attention to the criminal provisions - which seem on their surface to make any commercial willful trademark or copyright infringement subject to criminal penalties.

Given that this document likely will be scrutinized by scholars and practitioners concerned about the implications of strong copyright and digital property rights, I'll identify just a few specific drafting issues that leaped out at me.

• "Trademark counterfeiting" and "copyright piracy" are broadly defined, and seem to include any form of trademark or copyright infringement.  In other words, these terms could be readily replaced with "trademark infringement" and "copyright infringement" wherever they appear in the document.  That said, the trademark counterfeiting language is somewhat ambiguous, and could plausibly be read to only apply to instances where the mark "cannot be distinguished in its essential aspects" from the registered trademark.
• Another issue is the sudden appearance of "copyright or related right," which is first used in Chapter Two, Article 2.2(1).  Perhaps this is an artifact from earlier drafts, but I didn't see any definition of these "related rights."
• The procedures for civil enforcement of IP rights largely appear to parallel U.S. law.  However, the damages provisions strongly favor rights holders, perhaps more so than current domestic copyright and trademark law. 
• Similarly, to the extent the sections on litigation discovery procedures expand parties' rights and obligations, they may create a disjunction with current law.
• In the context of border measures, the terms "goods of a commercial nature" and "goods of a non-commercial nature" are left undefined.  On the surface, it seems like nearly every good hs a commercial nature, but perhaps I'm just picking at nits with this one.
• Likewise, the term "acts carried out on a commercial scale," used in the context of the section on criminal penalties, seems equally broad, especially given that it includes "at least those carried out as commercial activities for direct or indirect economic or commercial advantage."
• The pro-rights holder forum and education campaign requirements seem quite one-sided, especially for such a sensitive subject.  Chapter Three, Articles 3.1(4) and 3.4 are particularly strong in their requirement that governments present a pro-IP rights holder message.

The full text of the proposed version of ACTA is available here:  Download Finalized ACTA text.  In addition to substantive issues, some organizations have raised concerns about the potential approval of ACTA via Executive Agreement, as opposed to ratification by the Senate.  If the former approach is indeed used, it will likely have profound legal implications that courts, practitioners and scholars will need to address.

Update: As one commenter pointed out, Terry Hart's blog Copyhype has a detailed point-by-point comparison of many ACTA provisions to the relevant U.S. law.  Mr. Hart also responds to some of the negotiation transparency criticisms that various organizations have raised. 

En Banc Federal Circuit Arguments in TheraSense and TiVo: Update

By Jason Rantanen

Update: Binal Patel from Banner & Witcoff was kind enough to provide Patently-O with a transcript that the firm prepared of the TheraSense oral argument.  It can be obtained here: Download Therasense v Becton - transcription

* * *

Today the en banc Federal Circuit heard arguments in TheraSense v. BD and Bayer (Inequitable Conduct) and TiVo v. Echostar (post-injunction infringement proceedings).  Audio of both arguments is now available via the Federal Circuit's website, and Bruce Wexler of Paul Hastings has written a summary of the TheraSense argument.

AstraZeneca v Apotex: Affirmance of a Preliminary Injunction

By Jason Rantanen

AstraZeneca LP v. Apotex, Inc. (Fed. Cir. 2010)
Panel: Rader, Bryson (dissenting in part), Linn (majority author),

Contrary to popular opinion, it's still possible to obtain a preliminary injunction in a patent case - it's just very difficult.  Astrazeneca v. Apotex provides an example of an affirmed preliminary injunction, and is significant for that reason alone.  It also raises some interesting inducement issues relating to intent that I'll discuss in a separate post.

Background
This case revolved around AstraZeneca's budesonide inhalation suspension drug product, which consists of a vial containing a single dose of budesonide suspended in a sterile liquid.  The drug is administered by squeezing the entire contents of the vial into a jet neubulizer, then inhaling the resulting mist through a mask attached to the nebulizer.  Because budesonide is an inhaled corticosteroid, the FDA requires that the label include a warning instructing patients to "titrate down" to the lowest effective dose of the medication to avoid any adverse effects from excessive use of the medication. 

The two patents at issue, Nos. 6,598,603 and 6,899,099, both contain method claims covering the once-daily use of the nebulized dose of a budesonide composition and product claims covering AstraZeneca's drug product kit.

Apotex sought approval to market a generic version of AstraZeneca's drug product.  As an ANDA applicant, it was well aware of AstraZeneca's patents, and sought to avoid the once-daily method claims by removing any mention of once-daily dosing from its labels.  While it succeeded in part, the FDA nevertheless required Apotex to keep the titration warning language in the generic product's label.

During the preliminary injunction proceedings, Apotex raised two principal arguments in response to the method claims.  First, it contended that they were anticipated; second, it contended that its distribution of the generic version of the drug would not induce infringement of AstraZeneca's method claims.  The district court rejected Apotex's arguments, and granted a preliminary injunction enjoining Apotex from marketing its product.

Note: The district court agreed with Apotex that the kit claims were invalid.  On appeal, the panel affirmed that determination. 

Anticipation
Apotex's first anticipation argument, involving a prior art patent, turned on a question of claim construction: whether the term "budesonide composition" encompassed budesonide encapsulated in liposomes (the '603 patent teaches dispersing budesonide in a solvent, either as a solution or a suspension that may include liposomes as an excipient).  The majority agreed with AstraZeneca's position, focusing on the discussion contained within the specification and buttressing its conclusions with extrinsic evidence (in this case, expert testimony).  Judge Bryson, dissenting on this point, reached the opposite conclusion: the claim term is not limited to budesonide directly dispresed in solvent, and thus the method claims are anticipated.

Apotex's also argued that a prior art British advertisement for AstraZeneca's product describing it as a twice-daily product anticipated the patents.  The majority again agreed with AstraZeneca that this reference did not anticipate the once-daily method claims, both because it did not disclose once daily dosing and because it was not enabled with respect to that type of dosing.  (Obviousness was apparently not in dispute, as at the time of the earlier reference no one recognized that the product could be administered once per day and still be effective).  Judge Bryson again disagreed, reading the prior art advertisement to suggest the administration of the drug once a day.

Inducement of Infringement
In challenging the district court's finding of inducement of infringement, Apotex focused on the subject of intent, arguing that its instructions did not demonstrate intent to cause the users of its product to engage in once-daily dosing and that it lacked specific intent to cause infringement of Apotex's patent.  The Federal Circuit rejected these arguments, affirming the district court's conclusion that the downward-titration instructions would necessarily result in some users engaging in once-daily dosing and noting that Apotex was well aware of the infringement problems raised by once-daily dosing, yet chose to proceed nonetheless.

Preliminary Injunction "Substantial Question of Invalidity" Standard
Although not playing a major role in the ultimate outcome of this appeal, the court's articulation of the "likelihood of success" standard, along with the subsidiary "substantial question of invalidity" element, is noteworthy given the divergent views on this subject, such as those expressed by Judges Newman and Gajarsa in Abbott Laboratories v. Sandoz, 544 F.3d 1341 (Fed. Cir. 2008).  AstraZeneca v. Apotex follows the approach of requiring a seemingly high threshold for patentees/low threshold for defendants on this issue:

For a patentee to establish that it is likely to succeed on the merits, it “must demonstrate that it will likely prove infringement of one or more claims of the patents-in-suit, and that at least one of those same allegedly infringed claims will also likely withstand the validity challenges presented by the accused infringer.” Ama-zon.com, 239 F.3d at 1351. When reviewing the grant of a preliminary injunction, this court “views the matter in light of the burdens and presumptions that will inhere at trial.” Titan Tire Corp., 566 F.3d at 1376 (citation omitted). A preliminary injunction should not issue if an alleged infringer raises a substantial question regarding either infringement or validity, i.e., the alleged infringer asserts an infringement or invalidity defense that the patentee has not shown lacks substantial merit. Genentech, Inc. v. Novo Nordisk A/S, 108 F.3d 1361, 1364 (Fed. Cir. 1997).

Split Court Denies Rehearing En Banc in Sun Pharmaceuticals v. Eli Lilly

By Jason Rantanen

Sun Pharmaceutical Industries, Ltd. v. Eli Lilly and Company (Fed. Cir. 2010) (denial of rehearing and rehearing en banc)

In Sun Pharmaceutical, a Federal Circuit panel affirmed a district court determination that Eli Lilly's patent for a method of using gemcitabine to treat cancer was invalid due for obviousness-type double patenting based on another application, filed the same day, claiming the compound gemcitabine and disclosing its use for treating cancer.  (The previous Patently-O write-up is here).  This morning the Federal Circuit issued an order denying Eli Lilly's petition for rehearing and rehearing en banc.  The court was closely split on the latter, with four of the nine currently sitting judges dissenting on the decision not to rehear the decision en banc.

The dissent's principal concern was that, in its view, the panel opinion involved a departure from precedent, thus creating an intra-circuit split.  According to the dissent,

the panel held the claims to the anticancer use to be invalid for double patenting because the anticancer use was mentioned (but not claimed) in the continuation-in-part specification that is not prior art, stating that “[t]he asserted claims of the later ’826 patent simply claim the anticancer use disclosed in the specification of the ’614 patent,” reported at 611 F.3d at 1389.

The dissent pointed out that this approach, which focused on the disclosure of the simultaneously filed patent, not its claims, was contrary to precedent:

Uniformly, unlike examination for obviousness based on prior art, the issue of obviousness-type double patenting is directed to whether the invention claimed in a later patent is an obvious variant of the invention claimed in an earlier patent. The panel opinion violates a vast body of precedent.

Furthermore, according to the dissent, expanding the doctrine of obviousness-type double patenting to the facts of this case serves no good policy purpose and creates a schism in the law - a schism that should be addressed by the court en banc:

A change of law “in ways that negatively impact the patentability of important later-discovered uses” serves no public purpose in areas in which commercial development requires patent protection. Id. If the majority of the court now believes, as a matter of policy, that the law should be changed in this new direction, en banc treatment is particu-larly appropriate, for the court’s rule is that the earlier precedent prevails unless overruled en banc. A situation in which the court ignores this rule, and applies whatever law the panel prefers, is an indictment of the ability of this court to provide stable law in the areas entrusted to us.

Comment: Given that there are currently only nine sitting Federal Circuit judges, it seems unlikely that the court will grant a rehearing en banc absent extraordinary circumstances - especially in cases where the panel decision was unanimous.  In that situation, in order for an appeal to be reheard en banc, at least five of the six judges who did not participate on the panel would need to vote to rehear the decision en banc.  Of course, there are instances when this would not apply, as senior judges and visiting judges frequently participate in panel determinations, but it is something to keep in mind for the near future.

Inducement of Infringement: Should We Even Think of its Fault Element in Mens Rea Terms?

By Jason Rantanen

The conventional approach to the fault elements¹ of indirect and willful infringement is to speak of them in mens rea (or state of mind, if you prefer) terms.  But describing fault this way is largely nonsensical when dealing with modern indirect and willful infringement.  In my current work-in-progress, I suggest that the fault element of these doctrines should instead be conceived of as an objective inquiry that focuses on the degree of risk of infringement to a person in the accused party’s shoes.  Given the Supreme Court's grant of certiorari this morning in Global-Tech v SEB, questioning whether we should even be talking about the issue in mental state terms seems particularly timely.

Inducement of infringement is the poster child for the problems associated with viewing the fault elements for certain doctrines in mens rea terms.  For years, both the Federal Circuit and scholars struggled to define the state of mind necessary for inducement.  Did it require intent to infringe a patent, or just intent to cause the underlying acts that constituted infringement?  Even after the court settled this issue in DSU Medical, it continued to conceive of the requirement in mental state terms – in i4i v Microsoft, for example, the court stated that inducement requires that the accused party “knowingly induced infringement and possessed specific intent to encourage another’s infringement.”   598 F.3d 831, 851 (Fed. Cir. 2010).  And perhaps the strongest evidence of how deeply this view is entrenched is the Court’s Question Presented in SEB, which assumes that the fault element must be described in mental state terms – asking whether the accused infringer must possess a certain “state of mind,” be it one of deliberate indifference or purposeful conduct.

In my paper, I offer several reasons why viewing the fault element of inducement in mental state terms is wrong.  Among them are the following:

• The “people” who are accused of inducement are not people at all.  They are corporations.  To speak of a corporation as having a specific state of mind is borderline meaningless.  Is it sufficient that an engineer’s purpose is to infringe a patent?  Or does one look to the legal department?  Or must senior management “intend” to infringe a patent?   These questions are particularly problematic in the patent infringement context, which involves assessments not just of factual consequences, but also of legal questions.

• No one ever has the “purpose” of infringing a patent.  Of course, one may purposefully engage in acts that constitute infringement.  One may even purposefully copy another’s technology.  But no one’s purpose is to infringe a patent.

• Nor does the alternate mens rea concept of “knowledge” work.  Knowledge is typically established when one is “substantially certain” of certain consequences.  Given the uncertainties associated with patent law, one can virtually never be “substantially certain” that conduct infringes a patent short of a final judgment.

• Indeed, the facts of past opinions involving inducement suggest that, notwithstanding the court’s framing of the legal issue, what is really required is the existence of an obvious, high risk that the relevant conduct infringes a particular patent – not actual knowledge that it infringes a patent or purpose to infringe a patent.  Thus, although the fault element of inducement is commonly articulated as requiring “intent to infringe a patent,” I suggest that the normative standard that is actually being applied is one of recklessness. 

Rather than continue to attempt to articulate the fault element of inducement as if it required a subjective mental state, I suggest that an objective inquiry akin to civil recklessness is more appropriate.  Specifically, I argue that the better approach would be to ask whether, given the information known to the accused party at the relevant time, a high risk that the relevant conduct infringed a patent would be obvious to a person in the accused party’s place.   Obviously, my articulation is by no means perfect (and I’m dealing with some of the imperfections in my paper), but I think it provides a more intelligible articulation of the fault element for inducement than currently exists.

¹ By "fault element," I simply mean the component that transforms a doctrine into something other than a strict liability claim.

The Federal Circuit and Inequitable Conduct: Part III

By Jason Rantanen

Yesterday, I discussed our conclusion that the Federal Circuit applies a stricter standard than the lower tribunals it reviews and that this preference for patentee success manifests through the intent to deceive component of the inequitable conduct analysis.   In this post, I raise some broad ideas about inequitable conduct jurisprudence.  The paper raises others as well, but the ones that follow offer a good perspective into what we believe may be going on. 

The first idea is that the Federal Circuit might be applying a standard for intent to deceive that is higher than that required by its own caselaw.  In other words, the Federal Circuit’s articulated standard – intent greater than gross negligence – might be lower then the court’s normative perspectives on inequitable conduct.  At least some circuit judges might be applying a requirement more akin to knowledge or purpose.  This idea finds some support in the empirical evidence.  Our data indicate that patentee win rates can vary dramatically (from 40% to 100%) depending on the judge authoring the opinion, as the below graph of 14 judges who sat on the bench during the past decade illustrates. 

Following closely from this first idea, and also suggested by the Figure, is the notion that when it comes to inequitable conduct the Federal Circuit might be having trouble communicating its standard – particularly with respect to intent – because it is not speaking with one voice.  If the mental state standard applied at the appellate level differs between judges, lower tribunals might have a difficult time “locking on” to the Federal Circuit’s standard.  This problem could be amplified by the fact that, as we have shown, the Federal Circuit does not seem to have balancing jurisprudence, which theoretically would address mental state standards above the threshold.  Thus, rather than having a single standard for intent to deceive that is further refined through the balancing inquiry, Federal Circuit jurisprudence might have at least two distinct (and somewhat bipolar) mental state requirements, one higher than the other.  This state of affairs might produce jurisprudential variation (and perhaps confusion among district courts), and might concentrate (as we have observed) inequitable conduct’s focus on intent to deceive.

Another idea the paper raises is that uncertainty around the standard might reflect jurisprudential design (albeit, probably unintentional jurisprudential design).  For example, perhaps the Federal Circuit believes inequitable conduct doctrine is necessary to protect the integrity of the patent system, but is strongly biased against successful (for the patent challenger) inequitable conduct claims.  Thus, the court might desire to maintain the threat of inequitable conduct so as to encourage patent applicants to take appropriate care in dealing with the public.  Yet allowing too many findings of inequitable conduct might be equally bad, as it could lead the public to question the validity of the patent system altogether, and moreover might invite the “plague” of overasserting inequitable conduct so frequently warned about.  An obfuscated standard for intent to deceive might be just right for balancing these concerns, because it provides a structural context that allows the Federal Circuit to maintain the threat of inequitable conduct – and keep the patent bar in line – but rarely find inequitable conduct.  In effect, this structure encourages patentees to police themselves, and also creates a mechanism by which private parties are responsible for ensuring that patent applicants do not misbehave towards the government, i.e., the law sets up a system that mostly enforces itself. 

The entire paper, which also includes additional observations, ideas, and recommendations, can be downloaded here, and we welcome all comments.  In addition to responding below, comments can be sent to us directly at prm.icpaper@gmail.com.  If the download link does not work for you, and you would like a copy of the paper, please email the above address and I will be happy to send you a PDF.

The Federal Circuit and Inequitable Conduct: Part II

By Jason Rantanen

Part II of this series describes the methodology used in our working paper The Federal Circuit and Inequitable Conduct: An Empirical Analysis, and summarizes some of the key findings.  You can download the entire paper here.  In addition to responding below, comments can be sent either directly to us or to prm.icpaper@gmail.com.

Methodology
The study uses the technique of “content analysis,” which permits researchers to systematically read and empirically analyze the text of judicial opinions.  In broad terms, we first screened all Federal Circuit opinions that contained the term “inequitable conduct” to identify cases that analyzed the issue.  We read all of these cases, coding pertinent information from each independent analysis of inequitable conduct.¹  Overall, we coded information from 361 inequitable conduct analyses between the years 1983 and 2010.  The coded information constitutes the empirical data, and the paper reports these data using a variety of statistical presentations and arguments. 

Results
We first examined patent applicants’ success before the Federal Circuit as opposed to lower tribunals.   Our analysis reveals that patentees are quite likely to succeed before the Federal Circuit, winning 76% of the time, a rate of success higher than that observed in the lower tribunal judgments the court is analyzing.  Overall, the Federal Circuit affirms lower tribunal findings of no inequitable conduct 91% of the time, but affirms findings of inequitable conduct only 45% of the time, as illustrated by the below graphs.  This suggests to us that the Federal Circuit is applying a stricter standard than in the lower tribunal opinions it reviews.



 
We next looked at the analytical structure of the inequitable conduct doctrine, which consists of three components: a materiality inquiry, an intent to deceive inquiry, and a discretionary judicial balancing of materiality and intent undertaken with a view toward deciding whether a patent applicant acted inequitably toward the public. 

Examining the data in this light revealed two key findings.  First, when the Federal Circuit gives a single reason for patentee success, that reason is nearly two and a half times more likely to be lack of intent to deceive than it is to be lack of materiality.  Second, balancing is expressly discussed only 8% of the time and forms the basis for a reversal only 2% of the time.  We think this means that the balancing inquiry does not play much of a substantive role in Federal Circuit inequitable conduct jurisprudence.  To be clear, while it looks like lower tribunals need to engage in this step of the analysis, the Federal Circuit does not seem to have any jurisprudence that guides or constrains how lower tribunals actually apply this step.  Instead, balancing at the Federal Circuit looks like a formality, such as checking a box or touching a base, as opposed to a meaningful guide to determining whether a patent applicant engaged in equitable conduct.

* * *

¹In other words, if a case involved a claim that four patents were procured by inequitable conduct and the court’s analysis addressed all of the patents in a single textual analysis or rationale, then a single record entry was made in the dataset.  By contrast, if the court used one textual analysis or rationale to find, perhaps, that one of the patents was procured inequitably, and then used a single textual analysis or rationale to find that the other three were not, then two record entries were made in the dataset.

The Federal Circuit and Inequitable Conduct: Part I

By Jason Rantanen

Professor Lee Petherbridge, Ali Mojibi and myself are circulating a draft of our paper Inequitable Conduct and the Federal Circuit: An Empirical Analysis for comment.  The underlying study examines the content of the entire body of Federal Circuit inequitable conduct jurisprudence, and the paper offers several interpretations of the reported data.

Among the most interesting are: that the Federal Circuit seems to apply a stricter standard for inequitable conduct than a substantial number of the tribunals it reviews; that the Federal Circuit’s inequitable conduct standard is applied primarily through the intent to deceive component of the analysis; and that while the apparent lack of clarity in the inequitable conduct standard may be a result of judicial variation on the court, it may also represent a preference by the Federal Circuit to effect a jurisprudential design, the purpose of which is to encourage good faith behavior on the part of patent applicants while only rarely finding inequitable conduct. 

The abstract reads as follows:

Inequitable conduct is unique judicially created doctrine designed to punish patent applicants who behave inequitably toward the public in the course of patent acquisition.  Its name alone strikes fear into the hearts of patent prosecutors, and justly so – for when successfully asserted, inequitable conduct can have devastating consequences that reach far beyond a patentee’s case.  The need for a systematic empirical study of inequitable conduct jurisprudence has become especially pressing now that the Federal Circuit is reviewing inequitable conduct en banc – in terms so broad as to be unprecedented in the history of the doctrine.  This Article reports such a study. 

The study reported here provides evidence, inter alia, that the Federal Circuit applies an inequitable conduct standard stricter than that applied by a substantial number of the tribunals it reviews.  The Federal Circuit’s stricter standard manifests primarily through the intent to deceive component of inequitable conduct doctrine.  For all intents and purposes the Federal Circuit has no substantive jurisprudence around the balancing component, and the materiality component is comparatively less impactful then intent to deceive.  The court appears to have trouble communicating its stricter standard to lower tribunals.  We offer some explanations for why this might be so, and offer some modest suggestions that might advance inequitable conduct doctrine.

The complete Article can be downloaded here.   As this is a work in progress, we are particularly interested in any comments, including alternate explanations for the results we discuss.  In addition to responding below, comments can be sent to us directly or to prm.icpaper@gmail.com.

False Marking Claims: Standing

By Jason Rantanen

Stauffer v. Brooks Brothers, Inc. v. United States (Fed. Cir. 2010)

Raymond Stauffer brought an action against Brooks Brothers claiming that bow ties sold by the defendant were falsely marked with patents that expired in 1954 and 1955.  Stauffer is a patent attorney who purchased some of the marked bow ties.  The district court granted Brooks Brothers' motion to dismiss for lack of standing, and subsequently denied the United States' motion to intervene.  Stauffer and the United States appealed.

Section 292 states:

(a) . . .
Whoever marks upon, or affixes to . . . any unpatented article, the word “patent” or any word or number importing that the same is patented, for the purpose of deceiving the public
. . .
Shall be fined not more than $500 for every such offense.
(b) Any person may sue for the penalty, in which event one-half shall go to the person suing and the other to the use of the United States.

(emphasis added).  This type of language is called a "qui tam" provision, by which the government  essentially asigns its rights to a private party (the qui tam "relator").  Because the relator is standing in the place of the United States, he or she must prove that the government, as opposed to the relator, satisfies the requirements for standing.  Central to this case was the district court's determination that Stauffer failed to sufficiently allege that the United States suffered an injury in fact from Brooks Brothers' alleged false marking. 

On appeal, the Federal Circuit concluded that the district court had erred on this point:

Congress has, by enacting section 292, defined an injury in fact to the United States. In other words, a violation of that statute inherently constitutes an injury to the United States. In passing the statute prohibiting deceptive patent mismarking, Congress determined that such conduct is harmful and should be prohibited. The parties have not cited any case in which the government has been denied standing to enforce its own law. Because the government would have standing to enforce its own law, Stauffer, as the government’s assignee, also has standing to enforce section 292.

Slip Op. at 9.

The panel rejected Brooks Brothers' reliance on Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61 (1992), which denied plaintiffs standing under a citizen-suit provision, as relating only to suits against the government itself.  It also rejected the argument that Stauffer's standing depends on whether the alleged injury is proprietary or sovereign, concluding that both types of injury are sufficient to confer standing on the government, and therefore on the relator. 

With respect to the Government's request to intervene, the Federal Circuit determined that the district court  erred in concluding that the government lacked an interest sufficient to intervene as a matter of right under Rule 24(a)(2).  The panel stated that:

Contrary to Brooks Brothers’ position, the government has an interest in enforcement of its laws and in one half the fine that Stauffer claims, disposing of the action would “as a practical matter impair or impede the [gov-ernment’s] ability to protect its interest,” and Stauffer may not adequately represent that interest....As an initial matter, Brooks Brothers does not contest the government’s assertion that Stauffer does not adequately represent the United States’ interest in this case.

Furthermore, the government would not be able to recover a fine from Brooks Brothers if Stauffer loses, as res judicata would attach to claims against Brooks Brothers for the particular markings at issue....Thus, even though, as the district court noted, “the issue of the government’s ability to bring an action pursuant to section 292” in general was not presented,[] the United States’ ability to protect its interest in this particular case would be impaired by disposing of this action without the government’s intervention. We there-ore reverse the district court’s decision denying the government’s motion to intervene.

Slip Op. at 15-16 (internal citations omitted).

Note: The Federal Circuit expressly declined to address several issues, including  the constitutionality of Section 292(b) (an issue that was raised by amicus Ciba Vision Corporation), whether section 292 addresses a proprietary or a sovereign injury, or both, and whether Stauffers alleged injuries to himself, or his asserted injuries to competition, give him standing.  In addition, in its remand the panel explicitly instructed the district court to consider Brooks Brothers' motion to dismiss pursuant to Rule 12(b)(6), which argued that the complaint fails to allege an intent to deceive the public with sufficient specificity.

Adams Respiratory Therapeutics v. Perrigo - construction of pharmacokinetic claim terms

Adams Respiratory Therapeutics, Inc. v. Perrigo Company (Fed. Cir., August 5, 2010)
Panel: Linn, Moore (author), Friedman

By Jason Rantanen

Adams holds patent number 5,372,252, which covers an extended release formulation containing guaifenesin (an expectorant used to thin, loosen, and help expel mucus that causes congestion).  Perigo sought FDA approval for a generic version of Adams' product, Mucinex®.  After construing the claims, the district court granted summary judgment of noninfringement.  Adams appealed that decision.

The claim terms in dispute related to pharmacokinetic parameters.  These parameters are used to characterize the rate and extent of absorption of the active pharmaceutical ingredient ("API").  The primary term at issue, C_max, indicates the maximum concentration of the API following dosing.

"Equivalent C_max"
The parties' main dispute was over the meaning of the term "equivalent" in the context of "provides a C_max in a human subject equivalent to the C_max obtained when the first of three doses of a standard immediate release formulation having one third the amount of guaifenesin is dosed."  For purposes of FDA approval, a formulation is considered to be bioequivalent if, among other things, its C_max is within 80% to 125% of the value with which it is being compared at a 90% confidence interval. The district court agreed with Perrigo that "equivalent" should be construed to mean equivalent under the FDA bioequivalence guidelines.

On appeal, Adams challenged the requirement of a 90% confidence interval, arguing that it makes sense when seeking FDA approval, but not when proving infringement. 

The Federal Circuit agreed with Adams.  In doing so, it rejected Perrigo's argument that the inventors had expressly defined "equivalent" as te FDA's bioequivalence guidelines.  Rather, the court construed Adams' reference to the FDA guidelines as referring specifically to the 80-125% range, not to the requirement of a 90% confidence interval.  According to the court:

Requiring a 90% confidence interval would inappropriately raise the bar for establishing infringement.  Adams must show that it is more likely than not that Perrigo's ANDA product will have a Cmax within the 980-125% range. Adams is not required to show that Perrigo's product will meet this requirement 9 times out of 10.

Slip Op. at 8.

Comment: This interpretation opens up a box of statistical worms, and I suspect that down the line the court may regret its venture into probability theory.  For the time being, however, it gives parties useful language to quote when attempting to prove infringement (and perhaps invalidity) via clinical results. 

A ≈ B ≈ C therefore A ≈ C
Adams also appealed the district court's ruling that it  impermissibly compared the accused product to Mucinex.  Adams' argument was that because the accused product was bioequivalent to Mucinex, and Mucinex was bioequivalent to a standard immediate release ("IR") product, then the accused product had a C_max equivalent to the IR product. 

The Federal Circuit agreed that, under the circumstances of this case, Adams' argument was sufficient to preclude summary judgment of noninfringement.  The court cautioned, however, that "[i]f Adams had relied on the mere fact of bioequivalence of the two sets of products (and no PK data or C_max values, that would not be enough to survive summary judgment."  Slip Op. at 11.  Here, however, Adams presented actual PK data and C_max values, which a fact-finder could look at when assessing equivalence between the accused product and an IR product. 

"Bioavailable"
The court also addressed the meaning of the term "bioavailable" in the context of the '252 patent.  The dispute hinged on whether the phrase "fully bioavailable in the subject's stomach" meant "both release and availability in the stomach for absorption, wherever that absorption might occur." 

Perrigo argued that because "bioavailable" is commonly understood to mean absorption, thus requiring the guaifenesin to be absorbed in the stomach.  Because guaifenesin is primarily absorbed in the small intestine, this construction would preclude a finding of infringement.

The court rejected the proposed construction as inconsistent with the specification: "Although the specification never expressly defines bioavailable, it uses the term when describing the availability of the drug for absorption, not the actual absorption."  Slip Op. at 14.  The court further noted that Perrigo's construction would exclude the preferred embodiment, which "is rarely, if ever, correct and would require highly persuasive evidentiary support."

Doctrine of Equivalents
Finally, Adams argued that the district court erroneously precluded it from relying on the doctrine of equivalents with respect to a dependant claim requiring that the total amount of guaifenesin released in to the patient be at least 3500 hr*ng/mL.  The panel concluded that the use of a numerical limit did not preclude Adams from arguing that an amount of 3494.38 hr*ng/mL was equivalent to 3500 hr*ng/mL. 

Ring Plus v. Cingular Wireless

By Jason Rantanen

Although the court ultimately reversed the determination of inequitable conduct based on a lack of intent, its discussion of materiality is significant because the misrepresentation at issue occurred in the patent itself, in the form of statements about a prior art reference.  Prosecutors may want to take special note of this opinion in crafting their Background of the Invention sections. 

Ring Plus, Inc. v. Cingular Wireless Corp. (Fed. Cir., August 6, 2010)
Panel: Lourie, Gajarsa and Moore (author)

Ring Plus is the assignee of Patent No. 7,006,608 (the '608 patent), which relates to a software based algorithm and method for generating and delivering messages over a phone line that replace or overlay a ring-back signal.

After granting summary judgment of noninfringement, the district court held a bench trial on the unenforceability of the '608 patent.  Following the bench trial, the district court concluded that the '608 patent was unenforceable due to inequitable conduct.  Ring Plus appealed both determinations, along with the denial of its motion to disqualify Cingular's counsel. 

Inequitable conduct: Materiality but no Intent
The district court's inequitable conduct determination was based on two alleged misrepresentations concerning the substance of two prior art references, Strietzel and Sleevi.  The district court found that the first misrepresentation was in the Background of the Invention section of the '608 patent, which asserted that both references proposed hardware based systems but no software to operate those systems.  Contrary to this assertion, the district court found, one of skill in the art would have understood the references to disclose software-based algorithms.¹ 

The panel agreed that this was a material misrepresentation.  Although neither reference explicitly disclosed software, the panel could not say that the district court clearly erred in finding that a person of ordinary skill in the art would have understood the references to disclose software-based algorithms. 

In arriving at the conclusion that the statement about the contents of the prior art constituted a misrepresentation, the panel rejected the contention that it was merely attorney argument.  The court did not address this issue in any depth, merely stating that because the statement was a misrepresentation, it "was outside the boundas of permissible attorney argument."  Slip Op. at 9.

Comment: I am a troubled by the court's cursory statement on this point because of the ambiguity it creates.  These types of sweeping assertions, made without addressing the substance of the argument or citing relevant authorities, are the kinds of things that are likely to tie attorneys and judges in knots.  Indeed, the court's quotation from Rothman is particularly perplexing, as Rothman reached the opposite conclusion on similar facts.  At a minimum, one would expect the court to explain why Rothman does not apply.

Ultimately, however, the panel concluded that Cingular had failed to present clear and convincing evidence of intent to deceive.  In arriving at this conclusion the court noted that the references were ambiguous as to operating software, and the prosecuting attorney's testimony gave rise to the inference that the applicants believed that the two references did not disclose software for operating a telephone system.  Because this inference was as reasonable as the district court's inference of deceptive intent, the district erred in its finding of deceptive intent.

Other holdings
The panel also addressed Ring Plus's challenge to the district court's construction of two claim terms, which formed the basis of the noninfringement ruling.  The court affirmed the district court's construction, relating to the sequence of steps in the '608 patent.  In addition, the court rejected Ring Plus's argument that Cingular's counsel should have been disqualified for ex parte contact with a Ring Plus director and officer.  The court concluded that there was no evidence of impropriety under Fifth Circuit law.

¹The district court also found that the applicants made a misrepresentation about these references during prosecution; the panel concluded that this statement was not a misrepresentation.

Sun Pharmaceuticals v. Eli Lilly: obviousness-type double patenting in the pharmaceutical context

Sun Pharmaceutical Industries, Ltd. v. Eli Lilly and Company (Fed. Cir. July 28, 2010)

By Jason Rantanen

Double-patenting issues arise when two commonly owned applications cover the same or similar inventions.  The issues in this appeal revolved around an earlier patent claiming a composition of matter and describing a method for using that composition, and a later patent claiming that method of use. 

Both of the patents in this case, Patent No. 4,808,614 (the '614 patent) and Patent No. 5,464,826 (the '826 patent) relate to gemcitabine, the active ingredient of Lilly's Gemzar® product.  The '614 patent claims both gemcitabine itself, as well as a method of using it to treat viral infections.  In addition, the '614 patent's specification discloses using gemcitabine to treat cancer.  The '826 patent claims a method of treating cancer comprising administering a therapeutically effective amount of gemcitabine.  The difference was important: the '614 patent expired on May 15, 2010, while the '826 patent does not expire until November 7, 2012.

Note: The applications leading to both the '614 and '826 patents were filed on the same day, December 4, 1984.  The '614 was a continuation-in-part of application No. 473,883 ("the '883 application"), which did not disclose using gemcitabine to treat cancer.  That information was added as part of the continuation-in-part. 

After filing an Abbreviated New Drug Application ("ANDA") for a generic version of Gemzar®, Sun Pharmaceuticals, sought a declaratory ruling that the '826 patent was invalid and not infringed.  Lilly counterclaimed for infringement of the '826 and '614 patents.  The '614 patent was not at issue in this appeal.

Obviousness-type double patenting applies
Applicants are barred from obtaining multiple patents covering the same invention by the doctrine of double patenting.  There are two types of double patenting: statutory double patenting, which prohibits a later patent from covering the identical invention, and obviousness-type double patenting, which prevents a later patent from covering a slight variation of an earlier patented invention.

On appeal, the panel agreed with the district court and Sun that the latter type of double patenting occurred here, thus invalidating the asserted claims of the '826.  The basis for the court's decision were two prior opinions, Geneva v. GlaxoSmithKline, 349 F.3d 1373, and Pfizer v. Teva, 518 F.3d 1353.  In Geneva, the earlier patent claimed a compound and the specification disclosed its effectiveness for inhibiting beta-lactamase.  The later patent claimed a method of using the compound to affect beta-lactamase inhibition.  Similarly, in Pfizer, the earlier patent claimed several compounds and the specification disclosed their use in treating inflamation; the later patent claimed a method of using these compounds for treating inflammation.  In both cases, the court ruled that the claims were not "patentably distinct," and thus the latter claims were invalid for obviousness-type double patenting.  

While Lilly argued that Geneva and Pfizer did not apply because "the specification of the earlier patent disclosed a single use for the claimed compound, which was an essential part of the patented invention and thus necessary to patentability," Slip Op. at 8, the court rejected that argument for two reasons.  First, the court disagreed that the specification in Pfizer disclosed more than one utility for the claimed compound.  In addition, the court read the rule of Pfizer as simply that "obviousness-type double patenting encompasses any use for a compound that is disclosed in the specification of an earlier patent claiming the compound and is later claimed as a method of using that compound.  Pfizer never implies that its reasoning depends in any way on the number of uses disclosed in the specification of the earlier patent."  Slip Op. at 10. 

The court also rejected Lilly's argument that the specification of an earlier application should have been consulted, as opposed to the specification of the '614 patent.  Drawing upon its claim construction precedent, the court noted that the specification is relevant to determining the coverage of the claims, which is at the heart of the obviousness-type double patenting analysis.  The court further noted that "consulting the specification of the issued patent, as opposed to an earlier version, is consistent with the policy behind double patenting," which rests "on the fact that a patent has been issued and later issuances of a second patent will continue protection, beyond the date of expiration of the first patent of the same invention or an obvious variation thereof."  Slip Op. at 14-15.

Federal Circuit Review of Patent Term Extensions

By Jason Rantanen

During the summer, the Federal Circuit is a relatively quiet place.  The judges often take their non-sitting months during this time, and the pace of opinions tends to drop.  Thus, for the next few weeks, I'll mostly be posting summaries of cases that issued this past spring and early summer.  The two cases discussed below deal with a relatively minor — but still important — issue in the pharmaceutical and medical device context: patent term extensions based on extensive regulatory review periods. 

Ortho-McNeil Pharmaceutical, Inc. v. Lupin Pharmaceuticals, Inc. (Fed. Cir.  May 10, 2010)
Photocure ASA v. Kappos (Fed. Cir. May 10, 2010)

35 U.S.C. §156 allows a patentee to obtains a term extension if the patent covers a product that has been subject to a regulatory review period before it can be marketed or used.  Pharmaceuticals and medical devices are subject to such a review period, and new drug products in particular often involve a lengthy application and testing process.  The initial determination as to whether a patent term extension should be granted is made by the USPTO, in consultation with the FDA.  That decision is subject to review or challenge in district court proceedings.

One of the key issues in determining whether a patent term extension is warranted for a drug is whether it is the first time regulatory approval has been granted for this particular drug product, a determination that turns on whether or not the "active ingredient" had previously been approved by the FDA.  Ortho-McNeil and Photocure, both authored by Judge Newman and issued on the same day, provide an interesting contrast on this issue. 

Ortho-McNeil v. Lupin
In Ortho-McNeil, the extension issue arose in the context of an injunction entered against Lupin Pharmaceuticals prohibiting it from making, using, selling, etc. a drug product covered by U.S. Patent No. 5,053,407 (the '407 patent) during the extension period.  In that case, the district court affirmed the PTO's determination that an enantiomer was a different drug product then its racemate. In doing so, the district court noted that the PTO's determination should be afforded great deference.

Note: Enantiomers are molecules that are mirror images of one another.  Due to their different orientation, they have different properties.  A racemate is a composition consisting of equal parts of the two enantiomers.  The '407 patent covered a substantially purified form of one of the two enantiomers (levofloxacin) in the racemate ofloxacin.  There was no dispute that levofloxacin was separately patentable from ofloxacin.

On appeal, the Federal Circuit agreed with the district court, concluding that there was no basis for challenging the established FDA and PTO practices of treating enantiomers as different drug products and rejecting Lupin's legislative intent argument.

Photocure v. Kapos
Photocure involved a contrary determination by the PTO: that the drug product at issue was not a different "active ingredient," and thus the patentee was not entitled to an extension.  In Photocure, the product at issue ("MAL") was a methyl ester of a compound ("ALA") that had previously been approved for the same therapeutic use.  While the FDA treated MAL as a new drug, requiring a full approval process, the PTO rejected the extension based on its conclusion that § 156(f)(2) does not mean the product approved by the FDA, but rather the "active moiety," which it concluded was the same in both MAL and ALA.

Both the district court and Federal Circuit disagreed.  In rejecting the PTO's interpretation of 156(f)(2), the Federal Circuit reasoned that § 156 focuses on the product that is subject to approval by the FDA, not the underlying pharmacological mechanism. Furthermore, Skidmore and Chevron deference standards did not apply because the statute was not unambiguous and the PTO's interpretation was neither persuasive nor consistent. 

Note: although not the primary focus of the opinon, the panel also concluded that the PTO was wrong even under its  "active moiety" interpretation as the biological properties of ALA and MAL are indisputably different.

* * * *

In addition to the issues discussed above, the scope of the injunction in Ortho-McNeil is worth noting.  Although the extension authorized by 35 U.S.C. § 156 covers the "selling" or "using" of the product covered by the patent, the district court enjoined Lupin from engaging in any of the traditional forms of direct infringement, including "making" or "importing."  Despite the literal language of §156, the Federal Circuit affirmed the scope of this injunction because there are no non-pharmaceutical "uses" of the drug product, a point that Lupin apparently conceded.  Although as a practical matter this distinction may be of little value, as pharmaceutical companies often have production facilities located outside the United States, it is something to consider when seeking or opposing litigation under § 156. 

Advanced Magnetic Closures v. Rome Fastener

By Jason Rantanen

Early this week, I wrote about Leviton, former Chief Judge Michel's last opinion on inequitable conduct before leaving the bench.  Advanced Magnetic Closures brings another perspective on the issue - this time in the form of a comment from the new Chief Judge about issuing inequitable conduct opinions while Therasense v. Becton, Dickinson is pending en banc.

* * * *

Advanced Magnetic Closures, Inc. v. Rome Fastener Corp. (Fed. Cir., June 11, 2010)

In Advanced Magnetic Closures, the court reviewed a district court determination that U.S. Patent No. 5,572,773 is unenforceable due to inequitable conduct by the alleged inventor.  The panel also reviewed the district court’s entry of attorney fees against both the patent holder (AMC) and its attorney. 

Inequitable conduct: The focus of the inequitable conduct determination was on the district court’s finding that the alleged inventor falsely claimed to the PTO that he was the inventor of the claimed magnetic fastener when, in fact, he was not.  Applying the Star Scientific standard, the panel concluded that the district court did not err by finding that “the single most reasonable inference able to be drawn from the evidence is that [the alleged inventor] intended to deceive the PTO.”  Slip Op. at 19 (internal quotations omitted). 

Attorney’s Fees: After concluding that the exceptional case determination was appropriate on the basis of both inequitable conduct and litigation misconduct (an issue that the appellant waived by failing to include it in its briefs), the court addressed the attorney sanctions entered against AMC’s attorney under 28 US.C. § 1927.  Applying Second Circuit law, the Federal Circuit concluded that the district court abused its discretion by sanctioning the attorney.  The court noted that attorney sanctions under 28 U.S.C. § 1927 require a finding of bad faith, as opposed to objective unreasonableness, and concluded that the district court’s single statement that the attorney “should have been aware” of the deficiency of AMC’s patent infringement claim was insufficient to rise to this level.  

Chief Judge Rader’s Concurrence: The most notable aspect of the opinion comes at the end, in the form of the new Chief Judge’s concurrence.  While Judge Rader agreed with the outcome of the appeal, he wrote separately to stress that “absent extreme facts such as those found in the present case, this court should refrain from resolving inequitable conduct cases until it addresses the issue en banc.”  He also provided the following interesting comment regarding Therasense:

“In Therasense, this court has been asked to address the transformation of inequitable conduct from the rare exceptional cases of egregious fraud that results in the grant of a patent that would not otherwise issue to a rather automatic assertion in every infringement case. The exception has become the rule. Generally, I would hold inequitable conduct cases until after this court reexamines whether to put the doctrine back into the exception category.”

Although no Federal Circuit decisions involving inequitable conduct have issued since Advanced Magnetic Closures, only a short time has passed.  It remains to be seen whether the Chief Judge’s proposed policy on inequitable conduct determinations will be followed for the coming months.

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For the sake of full disclosure, I note that I previously represented Abbott Laboratories in connection with the Therasense litigation.  I no longer represent clients, including Abbott.

Employee and Officer Liability for Inducing Infringement

By Jason Rantanen, Visiting Scholar at UC Hastings School of Law

Wordtech Systems, Inc. v. Integrated Networks Solutions, Inc. (Fed. Cir. 2010)

In most patent cases, companies are the ones sued as alleged infringers. But sometimes individuals—particularly corporate officers—are also named as defendants.   While this often occurs when the company accused of infringing appears to be merely the officers’ alter ego, corporate officers can be liable for indirect infringement even when the corporate veil is not pierced.

In Wordtech, the patentholder (Wordtech) sued both a corporation (INSC) and the two principal employees of that corporation. A jury found the claims infringed both directly and indirectly by the corporation’s products, and awarded damages against all three defendants. The jury also returned a verdict of willful infringement of the asserted patents, and the trial judge trebled the jury’s damages award. The two employees appealed the verdict of liability entered against them, and all three defendants appealed the damages determination and district court’s denial of a motion for leave to amend their answer.

Individual Liability

Generally, the “corporate veil” shields officers from liability for tortious conduct occurring in the regular course of their employment, and the employees in Wordtech filed a motion for judgment as a matter of law (“JMOL”) based on this doctrine. The district court denied this motion, allowing the jury to find that the employees infringed the patents.

Individual Liability for Direct Infringement

On appeal, the Federal Circuit affirmed the denial of the motion for JMOL with respect to direct infringement because Wordtech presented substantial evidence during trial that the corporation was nonexistent under Nevada law and, even if it existed, the corporate veil should be pierced. However, the appellate court agreed with defendants that the lack of any instruction on corporate status constituted plain error, and remanded for further proceedings on personal liability for direct infringement.

Individual Liability for Indirect Infringement

The most interesting aspect of the opinion was the Federal Circuit’s ruling on the indirect infringement claims against the employees. Although the court addressed inducement and contributory infringement separately, it applied virtually identical reasoning to both.

The panel began by affirming the denial of the defendants’ Rule 50(a) and 50(b) motions based on the corporate veil theory, pointing out that “corporate officers who actively assist with their corporation’s infringement may be personally liable for inducing infringement regardless of whether the circumstances are such that a court should disregard the corporate entity and pierce the corporate veil.” Slip Op. at 12.   It applied the same reasoning to contributory infringement, concluding that “a corporation does not shield officers from liability for personally participating in contributory infringement.” Slip Op. at 14. Under these rules, the court rejected the individual defendants’ corporate veil defense as irrelevant to issues of inducement and contributory infringement.

Nevertheless, the panel concluded that the employees were entitled to a new trial due to flawed jury instructions, which asked only whether the accused product induced or contributed to infringement. Because a product cannot possess the necessary mens rea elements of inducement or contributory infringement, and there were no jury instructions that might have mitigated the error, the court vacated the verdict of liability.[1]

Damages

Addressing the issue of excessive damages in the context of its review of a denial of a motion for a new trial, the panel considered the evidence supporting the jury’s damages finding, which was based on a reasonable royalty under a hypothetical negotiation theory.   The panel reviewed the licenses Wordtech relied upon for the hypothetical negotiation and concluded that the verdict was not supported by the evidence and based solely on speculation and guesswork. This portion of the opinion is noteworthy for the court’s detailed discussion of the licenses and its rejection of them on an array of different grounds.

Denial of Motion to Amend

In a curious twist, the trial and subsequent appeal involved no substantive invalidity issues. This was due to defendants’ failure to raise an invalidity defense in their answer, apparently relying on the fact that a previous co-defendant school district had included the defense in its answer. After INSC and its two employees learned that the school district had settled with the patent holder, they moved to amend their answer to add invalidity defenses. The Federal Circuit declined to find that the district court abused its discretion in denying the motion, as it was filed months after the close of discovery despite the defendants’ prior knowledge of the invalidity defenses they intended to raise.

Notes:

 

• Ultimately, the favorable result for the individual defendants turned not on the legal question of whether officers can be liable for patent infringement, but rather on flawed jury instructions. This suggests two lessons from this case: first, be aware of potential employee liability, especially for indirect infringement, and second, make sure your jury instructions accurately reflect the elements of the issues being presented to the jury.
• Although the opinion describes the individual defendants as employees, the rules it applies refer to corporate officers. This may be reconciled by the fact that Wordtech presented evidence at trial supporting the conclusion that they were officers.   See Slip Op. at 11. Nevertheless, this opinion arguably could be used to apply indirect infringement claims to employees, provided that the necessary mens rea elements are present.

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[1] The panel also noted that Wordtech failed to identify proof of elements required for contributory infringement, including the existence of any direct infringement corresponding to the alleged contributory actions. With respect to inducement, although the opinion is silent on who the officers were inducing to infringe, the patentee’s brief indicates that its theory was that the officers induced the corporation’s direct infringement, similar to the circumstances in Power Lift, Inc. v. Lang Tools, Inc., 774 F.2d 478 (Fed. Cir. 1985).

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About Jason: After spending several years in practice as a patent litigator, Jason Rantanen is now looking at law from the academic side and is currently a Visiting Scholar at UC Hastings. His recent research focuses on the concept of mens rea in patent law.