Thursday, August 25, 2011

Steve Jobs: Visionary and Prolific Inventor on Design Patents

In the wake of Steve Jobs' announcement that he is stepping down as C.E.O. of Apple, today's New York Times has an interesting interactive piece illustrating over 300 patents in which Mr. Jobs is a named inventor.
Given Apple's ability to consistently deliver sleek consumer products with a unique look and feel over the years, it is not too surprising that a majority of these patents are design patents, rather than utility patents.  Creative industrial design has been a hallmark of Apple, and Apple recognized that this key aspect of its innovation was worthy of protection.

The lesson from Steve Jobs:  If you invest in distinguishing your product in the market place with unique industrial design, you should also protect that investment through design patent protection.

Friday, August 19, 2011

Parallel Networks: Judge Davis Grants Summary Judgment in Favor of 99 Defendants

Following up on  my June 9 post regarding the Parallel Networks case, Judge Davis has now issued an order granting summary judgment in favor of 99 of the 112 defendants in these related cases.  This decision is a vindication of the defendants' position and, more importantly, justifies the use of the expedited process Judge Davis used in this case.  For a more comprehensive write up on this order, see Michael Smith's EDTexweblog.

Federal Circuit Rejects Computer Readable Media Claims under Section 101

The ebb and flow regarding the scope of patentable subject matter for computer-related inventions continues this week with the Federal Circuits decision in Cybersource Corp. v. Retail Decisions, Inc.

In Cybersource, two claims of U.S. Patent No. 6,029,154 (“the ‘154 patent”) were invalidated by the district court under 35 U.S.C. § 101 for failure to recite patent-eligible subject matter.  One of the claims, Claim 3 was directed to a “method for verifying the validity of a credit card transaction” and recited three steps, including “obtaining information…”, “constructing a map of credit card numbers…,” and “utilizing the map…to determine if the credit card transaction is valid.”   Claim 2 was directed to “computer readable medium containing programming instructions” and recited “execution of the program instructions by one or more processors of a computer system” in the body of the claim.  The Federal Circuit affirmed. 

The decision with respect to the naked method claim (claim 3) is not too controversial.  The outcome with respect to Claim 2, however, represents a significant shift in the patent-eligible subject matter landscape.  Why, you ask?  Because for the last 15 years, patent practitioners in the computer arts have relied on In re Beauregard, 53 F.3d 1583 (Fed. Cir. 1995) for the proposition that claims drawn to “computer readable media” were patent-eligible articles of manufacture, not methods subject to the vagaries of Section 101. (“The Commissioner now states ‘that computer programs embodied in a tangible medium, such as floppy diskettes, are patentable subject matter under 35 U.S.C. § 101 and must be examined under 35 U.S.C. §§ 102 and 103.’)  (Note - there was no actual holding from the Federal Circuit in In re Beauregard, simply a remand. Since the Commissioner ultimately agreed with Beauregard’s position, there was no longer a case or controversy and thus no jurisdiction before the Federal Circuit.) The Federal Circuit has now dispelled this long-held reliance: 
Cybersource contends that, by definition, a tangible, man-made article of manufacture such as a ‘computer readable medium containing program instructions’ cannot possibly fall within any of ht three patent-eligibility exceptions the Supreme Court has recognized for ‘laws of nature, physical phenomena, [or] abstract ideas.” [citation omitted] We disagree.  Opinion at 16.
With those two words, the validity of claims in thousands of issued patents to computer-related inventions  are now in doubt. 

One line from this opinion that I find somewhat disturbing is that “[r]egardless of what statutory category (‘process, machine, manufacture, or composition of matter’ 35 U.S.C. § 101) a claims language is crafted to literally invoke, we look to the underlying invention for patent-eligibility purposes.”  In every other context we need to look at the claim language, all of the claim language, in order to define the “invention.”  Under the Cybersource analysis, courts may now ignore express limitations in the claim (such as “computer readable media” or “one or more processors”) to determine an “underlying invention” that is broader than what is actually claimed in order to invoke Section 101.  Creating a double standard for the Section 101 analysis just doesn’t feel right.

Very little is certain about the scope of patent-eligible subject matter for computer-related inventions in view of the Cybersource decision except this:  we have not seen the end of this issue.  My bet is that en banc review is in our near future.

Wednesday, August 17, 2011

8 Million U.S. Patents and Counting

The United States Patent and Trademark Office reached another milestone when it issued U.S. Patent No. 8,000,000 this week.

According to the USPTO website, "[u]nder the current numbering system for patents, number 1 was issued in 1836. A million patents later, number 1,000,000 was issued by the United States in 1911. The U.S. Patent and Trademark office issued patent number 8,000,000 on August 16, 2011."

The rate of patent grants has certainly been accelerating over the last 20 years.  U.S. Patent No. 7,000,000 issued on Valentines day in 2006, just over 5 years ago.  It took about 15 years to get from U.S. Patent 4,000,000 to 5,000,000 (which issued in 1991) and about 75 years to get from U.S. Patent No. 1 to U.S. Patent No. 1,000,000!

Monday, August 15, 2011

The Need For Patents Drives Google Acquisition of Motorola Mobility

Several weeks ago, I noted that patents were being associated with big money --make that really big money -- in several important events.  That trend continues this week with Google's announcement that it is seeking to acquire Motorola Mobility in a transaction valued at $12.5 Bil.  (This comes about a month after Google came up short in the $4.5 Bil Nortel patent auction.)  It is well understood that a strong patent portfolio can serve as a deterrent to litigation from a competitor that fears a counterclaim, or as a tool to settle patent litigation through cross-licensing deals.  It is no secret that a significant driving force behind this move is Google's need to strengthen its patent portfolio, especially in the wireless area.  (It is being reported that Motorola's active patent portfolio includes over 14,000 issued patents, and a pipeline of thousands of pending applications.)   As noted by Larry Page (on Google's blog) "[o]ur acquisition of Motorola will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies."

Motorola has a long history of investing in technology and supporting that investment with patent protection.  If there was ever any doubt that a strong intellectual property program contributes to the core value of an enterprise, those doubts should be dispelled in view of the large premium (more than 60% over Friday's closing price) being offered by Google in this deal.  In the fiercely competitive cell phone handset and tablet market, Google needs to strengthen its defensive patent position to compete effectively and is looking to do so by gaining access to a patent portfolio developed over the years by an enterprise that has long recognized the value in protecting its innovation.

Tuesday, August 9, 2011

Federal Circuit Affirms Sanctions and Attorney Fees Against NPE

As a young lawyer preparing for one of my first hearings, I asked my mentor for some last minute advice.  He said “follow two simple rules and you will be fine.  Rule # 1 - don’t piss off the judge.”  Well, that was simple enough, so I asked “OK, so what’s Rule # 2?”  He peered over his bifocals and said with a laugh, “Rule # 2 - make sure that you never forget Rule # 1!”  Apparently, Jean-Marc Zimmerman and his client Eon-Net didn’t receive this sage advice.  Last week, in Eon-Net et al v. Flagstar Bancorp 2009-1308, the Federal Circuit affirmed the district court’s award of $489,150.48 in attorney fees and costs under 35 U.S.C. § 285 as well as $141,984.70 in sanctions under Fed. R. Civ. P. 11.

The case, which is one of about a hundred filed by Eon-Net, has a long procedural history, including a previous trip up to the Federal Circuit following an initial sanctions award.  Following remand from the Federal Circuit, the district court engaged in claim construction proceedings, and found that the written description limited certain claim terms as needing to originate from “hard copy documents” (as opposed to electronic files or information entered via a user interface).  The parties stipulated to non-infringement under this construction and Flagstar moved for a finding that the case was exceptional under §285.  The district court granted this motion “on what it found were Eon-Net’s pursuit of baseless infringement claims, Eon-Net’s improper purpose of bringing the lawsuit against Flagstar to obtain a nuisance value settlement, Eon-Net’s destruction of evidence, and Eon-Net’s offensive litigation tactics.”  Opinion 8-9.  The court also invited Flagstar to renew its previous motion for sanctions (which, of course, it did).  The court then granted the motion for sanctions under Rule 11 “concluding that Eon-Net and its counsel failed to perform a reasonable pre-filing investigation and that their claim construction positions were unsupportable.”

One point that is noteworthy is that the claim language does not expressly limit the claim to “hard copy documents.”  Instead, this construction comes from the specification’s repeated reference to “hard copy documents” and characterizing the invention as relating to “hard copy documents.”  The Federal Circuit noted that “[i]n total, the term “hard copy document” appears over 100 times in the common disclosure of [the asserted patents.]”  Although Eon-Net tried to argue that this was merely a preferred embodiment, the Federal Circuit disagreed and found that “[t]his is not a case where a district court improperly imported a limitation from the specification or where the question of what the specification teaches about the claims presents a close call; here, the specification unequivocally compels the constructions adopted by the district court.”  Opinion at 15-16.

Exceptional Case Finding

In finding a case to be exceptional, “[l]itigation misconduct and unprofessional behavior may suffice, by themselves, to make a case exceptional under §285.”  Opinion at 17.  (citations omitted).  This first test goes directly to my mentor’s Rule # 1.  “Absent litigation misconduct or misconduct in securing the patent, sanctions under §285 may be imposed against the patentee only if both (1) the patentee brought the litigation in bad faith; and (2) the litigation is objectively baseless.”  Opinion at 17.  This second test is far harder standard to satisfy.

So, how did Eon-Net break Rule # 1?  First, by destroying potentially relevant evidence. Eon-Net’s principal, Mitchell Medina, testified that “with regard to document retention, collection, and production that ‘I don’t save anything so I don’t have to look’ and further testified that his companies “‘have adopted a document retention policy which is that we don’t retain any documents’ because those companies ‘have evolved into patent enforcement companies which are  involved in the business of litigation.”  Second, by failing to meaningfully engage in the court’s claim construction process by failing to offer a construction for any of the disputed claim terms and than submitting misleading extrinsic evidence to the court.  Third, by offering ridiculous discovery responses, such as “the skill in the art required is that sufficient to converse meaningfully with Mitchell Medina.”  Although Eon-Net argued that these were merely “flippant, facetious remarks not intended to offend,” offend they clearly did!

Objectively Baseless Litigation and Bad Faith

The district court found that Eon-Net’s allegations were objectively baseless based on the claim construction that limits the claims to “hard copy documents.”  The Federal Circuit agreed, finding that “because the written description clearly refutes Eon-Net’s claim construction, the district court did not clearly err in finding the Eon-Net pursued objectively baseless infringement claims.”  Opinion at 21.

In addressing Eon-Net’s bad faith in pursuing the litigation, the district court held that the case has “’indicia of extortion’ because it was part of Eon-Net’s history of filing nearly identical patent infringement complaints against a plethora of diverse defendants, where Eon-Net followed each filing with a demand for quick settlement at a price far lower than the cost to defend the litigation.”  Opinion at 22.  Specifically, Eon-Net had filed over 100 complaints and offered immediate settlement in the range of $25K to $75K depending on a defendant’s sales. “[T]hose low settlement offers-less than ten percent of the cost that Flagstar expended to defend suit – effectively ensured that Eon-Net’s baseless infringement allegations remained unexposed, allowing Eon-Net to continue to collect additional nuisance value settlements.”  Opinion at 23. 

Rule 11 Sanctions

In imposing sanctions against Eon-Net and Zimmerman, the district court found that the pre-filing investigation was insufficient.  Significantly, it is not disputed that “Eon-Net’s counsel did examine portions of Flagstar’s website and, based on his experience, concluded that it worked in a manner that infringed the ‘697 patent.”  Opinion at 26.  The Federal Circuit found this was not enough.  “A reasonable pre-suit investigation, however, also requires counsel to perform an objective evaluation of the claim terms when reading those terms on the accused device.”  Opinion at 26.  The district court found that Eon-Net’s claim construction positions “borders on the illogical” and in affirming the sanctions award, the Federal Circuit did not find this position to be clearly erroneous.  Opinion at 26.

Observations & Take Aways

What does all this have to do with my mentor and Rule # 1?  Given the facts of this case, and the applicable standard of review, if the district court had DENIED Flagstar’s motion for attorney fees and sanctions, it is very unlikely that the Federal Circuit would have disturbed that finding.  Clearly, the plaintiff behaved in a way that offended the court on several fronts, starting with the basic business model and extending to the disrespectful attitude exhibited to the court by Mr. Medina.  One or the other might have been tolerated – together these factors were fatal.  At the end of the day, had Mr. Medina and Eon-Net’s counsel pursued this litigation strategy in a manner that didn’t offend the court, it is likely that he wouldn’t now be forking over $600K in sanctions.  To paraphrase Rodney Dangerfield in “Back to School,” always follow Rule # 1, or you may wind up stepping in # 2.

FINAL NOTE- With over a hundred cases filed and most settling in the $25-75K range, one can make an educated guess that gross revenue to Eon-Net has been somewhere in the $3-5 Mil range.  It makes one wonder if the $600K in sanctions, while clearly significant,  is really an effective deterrent.