Tuesday, October 9, 2012
For years, the main stream press has ignored patents. As an attorney who embraces our patent system, I used to feel bad about being left out. Now, I am afraid, I feel worse. The main stream press as of late has stopped ignoring the patent system, and instead seems to be engaging in major league patent bashing. Oh, how I long for the good ol’ days.
Yesterday’s New York Times featured an article “The Patent, Used as a Sword,” that paints a picture of a patent system that is so badly broken that it is actually hindering the progress of technology rather than following its Constitutional mandate to “promote science and the useful arts.” My partner,
discussed this article briefly in his post on the Left Coast Law Blog. I like Kent's post, but the Time's article - not so much. Kent Schmidt Kent,
who is not a patent guy by trade, picks up on the article's theme and asks the natural
question this article begs: “Are we stifling competition and innovation” with our patent system? I feel inspired to answer.
The short answer to this question is NO. The patent system we currently have in place in the U.S. is certainly far from perfect and is being abused by some, but our patent system, despite its flaws, generally works as intended.
The Time's article bemoans the nearly $20 Bil reportedly spent on patent acquisitions and disputes over the last two years. That is certainly a lot of money, but over $12 Bil of this amount was spent by Google to acquire Motorola Mobility – not just patents, but an iconic U.S. company known for generations as an innovator. Years of innovation by Motorola were reflected in a robust patent portfolio that added substantial ongoing value to Motorola that was reflected in the purchase price of the company. Another $4.5 Bil was reportedly spent at auction to acquire the Nortel patent portfolio, with the proceeds going to Nortel’s bankruptcy estate to help make creditors whole. Although these patents fell into the hands of a licensing entity, Rockstar Consortium, the patents represent years of R&D investment that was captured by a substantial patent portfolio. As these two examples show, patents represent the conversion of a company's R & D efforts into a tangible asset and create a critically important incentive for investment in innovation.
Patents not only serve to protect investment, but also spur the market forward. As noted in the Times’ article “[i]f Apple’s claims — which include ownership of minor elements like rounded square icons and of more fundamental smartphone technologies — prevail, it will most likely force competitors to overhaul how they design phones, industry experts say.” This statement is intended to be some sort of dire warning from these unnamed “industry experts.” I don’t get it though. This is exactly how the system is supposed to work – an innovator gets a patent and can get compensated for use of the innovation by others– that’s one part of a patent’s cycle of promoting innovation. The limited monopoly presented by the patent also inspires the rest of the world to innovate to find new solutions to the problems addressed by the patent – that’s the second half of the cycle of innovation spurred by patents. When a hurdle is placed on the track, it doesn't stop the gifted runner – it makes him work to get over it and still outpace his competition. If competitors ultimately need to "overhaul how they design phones" because of patents, we will ultimately see new and better phones. The lack motivation to move past today’s status quo, such as the need to innovate around the patent of another, presents a far bigger risk of stifling competition and innovation than the current patent system does.
The risk of low quality patents being issued and asserted is real and improvements to patent examination are worth pursuing. Patent litigation is expensive and thoughtful ways of reducing this expense and making it easier to ferret out bad patents are worth pursuing. That being said, we should not abandon a system that is good in pursuit of a system that has unattainable perfection or no system of protection for innovation at all.
The patent system is not perfect and likely never will be. But, it is doing its job of balancing the competing requirements of maintaining an open competitive marketplace and rewarding innovators for bringing their ideas to the public for others to build on. It is still an engine for "promoting science and the useful arts."
Saturday, September 1, 2012
For the last five years, the law with respect to liability for inducement of a method claim was relatively clear and fairly consistently applied. (A rare treat in patent law!) When infringement of a method claim was based on inducement, there needed to be either one party performing all of the steps of the claimed method or, if more than one party was involved in performing the method, there needed to be a “mastermind” directing all of the parties to perform the various steps of the method. Without a "mastermind" (later clarified as requiring a contractual or agency relationship) there was no direct infringement of the method and, therefore, no liability for inducement. The Federal Circuit took two cases en banc to consider the propriety of this “single actor” requirement. Akamai Technologies, Inc. v. LimelightNetworks, Inc., 2009-1372 and McKessonTechnologies, Inc. v. Epic Systems Corp., 2010-1291. In a deeply divided decision, including a per curiam opinion along with dissenting opinions by Newman and Linn (joined by Dyk, Prost and O’Malley), the Federal Circuit announced a dramatic change in the law, holding that “we reconsider and overrule the 2007 decision of this court in which we held that in order for a party to be liable for induced infringement, some other single entity must be liable for direct infringement. BMC Resources, Inc. v. Paymentech,
L.P., 498 F.3d 1373 (Fed.
Cir. 2007). To be clear, we hold that all the steps of a claimed method must be
performed in order to find induced infringement, but that it is not necessary
to prove that all the steps were committed by a single entity.”
The majority opinion sets out the elements of the inducement claim in the context of multiple actors as follows: When the party accused of infringement does not itself perform any steps of the claimed method, such as in the McKesson case, “a party can be found liable for inducing infringement if it can be shown that (1) it knew of [the] patent, (2) it induced the performance of the steps of the method claimed in the patent, and (3) those steps were performed.” Majority Opinion at 35. In the case where the party accused of inducement performs some steps and another party performed other steps, as in Akamai, the elements are slightly modified to “1) it knew of [the] patent, (2) it performed all but one of the steps of the method claimed in the patent, (3) it induced the [other party] to perform the final step of the claimed method, and (4) the [other party] in fact performed that step.” Majority Opinion at 36. From these two statements from the court, we can generalize a bit, and set out the current law of inducement for a method claim as a single set of elements: (1) the defendant knew of the patent; (2) it either performed certain steps of the method claimed in the patent itself and/or induced others to perform those steps; and (3) all steps of the method were performed.
Interestingly, and much to the chagrin of
this holding only applies to inducement under 35 U.S.C § 271(b). With respect to direct infringement, the
majority punted, stating that “[b]ecause the reasoning of our decision today is not predicated on the doctrine of direct infringement, we have no occasion at this time to revisit any
of those principles regarding the law of divided infringement as it applies to
liability for direct infringement under 35 U.S.C. 271(a)." Majority Opinion at 13. As a result, the law remains that for direct
infringement liability, a single party needs to perform all steps of a
method. Those parties that perform only
some of the steps, but do not induce the performance of the remaining steps of a claimed method, can
still invoke divided infringement as a viable defense to an allegation of
infringement and likely face no liability. J. Newman
The Linn camp’s dissent is equally harsh on the majority, arguing that “[t]he majority opinion is rooted in its conception of what Congress ought to have done rather than what it did.” Linn dissent at 3. The Linn dissent argues that the single actor rule is properly founded in 271(a) and, like
argues that precedent requires an act of direct infringement before there can
be liability for inducement. J. Newman
As a result of this dramatic shift in the law, we can expect an increase in patent cases asserting inducement for method claims. There are certainly patents out there with claims that were not asserted due to a divided infringement issue, but now are back in play. Companies that have previously evaluated patents and determined that they likely did not have exposure for infringement of method claims based on a divided infringement theory may need to revisit those patents and reevaluate those claims under this new law.
Given the import of this issue and the deep divide in the Federal Circuit, it would not be surprising to see this case go on the Supreme Court for final resolution.
Wednesday, August 29, 2012
Since the Supreme Court’s decision in eBay made it more difficult to obtain injunctive relief in district court proceedings, patent owners have given more attention to the International Trade Commission ("ITC") and have used parallel district court litigation and ITC investigations to pursue both money damages and injunctive relief. A recent initial determination terminating the ITC investigation In the Matter of Certain Video Displays, 337-TA-828, highlights a potential pitfall with this approach. 337-TA-828, Order No. 9, August 1, 2012.
In Certain Video Displays, complainant Mondis sought an exclusion order from the ITC against certain TV’s and Video monitors. The asserted patents were previously asserted successfully against the respondents in the ITC action in an earlier district court case, Mondis Technology Ltd. v. LG Electronics, Inc. et al., 07-CV-565 (E.D. Tex.). In this district court action, a jury found that the defendants willfully infringed Mondis’ patents and awarded damages. In a post-trial motion, Mondis sought equitable relief in the form of ongoing royalties but did not seek an injunction from the district court. After motion practice, the district court ultimately ordered the defendants to pay on ongoing royalty to Mondis for continued sales of the accused products. Respondents’ motion before
at the ITC argued that the
payment of the court ordered ongoing royalty was effectively a license and that
sales subject to that royalty were not an act of infringement. Judge Essex agreed, stating that “the ALJ
finds that the ongoing royalty order constitutes a license authorizing CMI to
use the asserted patents’ claimed inventions for the products covered by that
the [sic] ongoing royalty order.” Order
at 21. J.
This result sends a cautionary message to plaintiff/complainants that are pursuing parallel proceedings. If injunctive relief is an ultimate objective of patent enforcement, it may be beneficial to run with the ITC investigation ahead of the district court case. (Since ITC actions are typically significantly faster than district court litigation, this generally occurs by default when the actions are filed simultaneously, as is often the case). As
noted, “in this case, the order [of cases] does matter,” since the district
court’s ongoing royalty order effectively stripped the ITC of jurisdiction. Order at 20. If, for strategic reasons, the district court
case does proceed first, the nature of any post trial relief from the district
court needs to be given significant consideration. For example, the plaintiff may forego ongoing royalties entirely
or it may be possible to fashion the scope of the ongoing royalty Order in a
way that would not foreclose a subsequent ITC action and exclusion order. For example, the plaintiff may seek a short “sunset”
royalty that only allows the defendant to continue sales for a short period of time and then expires. Alternatively,
the plaintiff may seek a provision in the district court order that discontinues ongoing royalty payment
obligations in the event an ITC action is initiated and during the pendency of
any ITC action. J. Essex
Friday, July 20, 2012
In the wake of substantial lobbying by many companies in the tech sector to limit ITC jurisdiction to prevent non-practicing entities (NPEs) from initiating 337 actions, the ITC published a press release, Facts and Trends Regarding USITC 337 Investigations. This "fact sheet" presents some interesting data on recent trends in ITC 337 investigations and spins it in a way that suggests that there is no NPE problem at the ITC (and implying that no remedial action by Congress is required.)
The data illustrates a clear uptick in the ITC’s case load, including NPE activity, since the Supreme Court’s 2006 EBay decision. It also shows that, while perhaps not dominating the docket, NPE activity represents a significant portion of the ITC’s docket. In fact, since 2006, 18% of ITC investigations were brought by NPEs, with what the ITC refers to as “category 1” NPEs (such as universities) accounting for 10% and “category 2” NPEs (patent investors/enforcers, sometimes called the not-so-nice term “trolls”) accounting for 8% of the ITC's 337 case load. This doesn’t seem too imbalanced at first blush. But, when one considers all of the enforceable IP rights in the U.S. that could form the basis of an ITC complaint, Category 2 NPEs must own or control some minuscule percentage of those rights. As a percentage of IP ownership, it can certainly be argued that Category 2 NPEs do in fact represent a disproportionate share of the ITC docket.
With respect to settlements, the ITC data illustrates that on average, about 50% of all 337 investigations are terminated by settlement or consent order prior to completion of the investigation. Category 2 NPEs show a somewhat higher settlement percentage, at 61 %. This should not be too surprising, though, since the Category 2 NPE business model is one that ultimately seeks monetary compensation from patent enforcement efforts. Injunctive relief, such as an exclusion order, only has value to a Category 2 NPE as a source of leverage in maximizing a financial return, not as the ultimate relief obtained.
The ITC data is nicely presented in a short (four page) fact sheet and is worth a look, even if you don’t agree with the ITC’s spin on the data. The data is certainly not so compelling as to prove that there is no NPE problem at the ITC or otherwise end the debate as to whether the ITC's domestic industry requirement should be limited in such a way as to foreclose NPE access to the ITC.
In the hierarchy of intellectual property rights, the big three are utility patents, trademarks and copyrights. Design patents, which protect the appearance of a useful article and not its functionality, have long been relegated to second class citizen status in the IP world and are often dismissed as providing scope that is too narrow or providing too little return on investment. This perception is misplaced and, as demonstrated by recent developments in the ongoing global IP war between Apple and Samsung, design patents and industrial design registrations should be viewed as a valuable additions to an innovator's intellectual property portfolio.
In one ongoing case in Apple and Samsung’s global patent battle, Apple v. Samsung, 11-CV-1846, N.D. Cal., Apple is asserting seven utility patents and six design patents against several Samsung smartphones and tablets. Samsung has returned fire with seven of its own utility patents. Following a preliminary injunction motion, Federal Circuit appeal, and remand, Samsung is now facing a preliminary injunction on its Galaxy Tab 10.1 tablet computer. The preliminary injunction is not based on any of Apple’s utility patents. Instead, it is based on one of Apple’s design patents that cover ornamental features of its iPad design, D504,889, that is ultimately going to prevent Samsung from selling its popular tablet computer, at least until the issues are finally decided at trial.
When a company invests in industrial design, succeeds in making a great looking product, and that look is important in the marketplace, design patents can be a powerful tool to help protect that investment. Design patents are relatively inexpensive to obtain and, if prosecuted thoughtfully, can be obtained with reasonable scope. Enforcement is also less expensive than utility patent litigation and can be quite effective. Its time for the poor design patent to get the respect it deserves.
Tuesday, July 10, 2012
No question in patent law in recent times has been quite as vexing as the scope of patent eligible subject matter, especially as it relates to computer-implemented methods. The Supreme Court has addressed the issue twice in three years in Bilski and Prometheus Labs, and we still seem no closer to understanding what makes an invention “patent elibible” under 35 U.S.C. 101. The debate keeps on rolling along with the Federal Circuit's recent decision in CLS Bank Int’l v. Alice Corporation, 2011-1301.
The claims at issue in CLS were found in three patents that each “cover a computerized trading platform for exchanging obligations in which a trusted third party settles obligations between a first and second party so as to eliminate ‘settlement risk..’” Opinion at 2. The claims at issue cover three different statutory classes, with method claims, system claims and article of manufacture claims directed to computer instructions stored on computer readable media. The district court analyzed the claims in each class separately and found all claims invalid as not defining patent eligible subject matter under 35 U.S.C. 101.
In reversing the district court, the majority provided a lengthy discussion on the history of patent eligibility cases, especially addressing the “abstract idea” and “law of nature” exceptions to patent eligibility. Opinion 11-21. (Since the first paragraph of the ten page analysis includes the quote 'Congress intended statutory subject matter to "include anything under the sun that is made by man,"' [citations omitted] you quickly get a sense where the majority is headed). At the end of its 10 page discussion, the majority sets forth a somewhat remarkable holding: “this court holds that when -- after taking all of the claim recitations into consideration — it is not manifestly evident that claim is directed to a patent ineligible abstract idea, that claim must not be deemed for that reason to be inadequate under 101.” Opinion at 20. I for one, am lost by this statement. A patent is presumed valid and a party seeking to invalidate a patent claim must do so by clear and convincing evidence. It was my impression that this same standard applies to defenses under 35 U.S.C. 101. I am not sure what “manifestly evident” is, but it sounds like a higher burden than clear and convincing evidence. Perhaps, the defendant’s new burden on this issue is to prove by clear and convincing evidence that it is “manifestly evident that [an asserted] claim is directed to a patent ineligible abstract idea” in order to prevail on this issue?
The case includes a spirited dissent by J. Prost (with barbs and jabs laced throughout both the majority and dissenting opinions) that argues that “[t]he majority has failed to follow the Supreme Court’s instructions—not just in its holding, but more importantly in its approach.” Dissent at 3.
Much more could be said about this 27 page opinion and 11 page dissent. But, since the petition for rehearing en banc is likely already being drafted (and in my opinion will likely be granted), we might as well wait for the en banc opinion to delve deeper into this case.
Wednesday, June 13, 2012
Since 2007 when the Supreme Court decided Bell Atlantic v. Twombly, 550 U.S. 544 (2007), there has been debate (and motion practice) over what is required in a complaint to adequately plead a cause of action for patent infringement. The debate centers on the tension between recent Supreme Court decisions (Twombly and Iqbal) which require pleading enough facts to “state a claim to relief that is plausible on its face” and Form 18 that is found in the Federal Rules of Civil Procedure, which requires only bare notice pleading. This issue was squarely presented in R &L Carriers v. Drivertech LLC et al., 2010-1493, Fed.
June 7, 2012.
In R & L Carriers, the complaint alleged counts of contributory infringement and inducement against a number of defendants. In pleading these counts of indirect infringement, the complaint alleged that certain of defendant’s customers were directly infringing the asserted patent. The district court found that the allegations of direct infringement did not contain sufficient factual allegations to plausibly establish that any actor performed all steps of the asserted method claim and therefore did not satisfy the pleading requirements of Iqbal and Twombly. Further, the district court found that the facts set forth in the complaint demonstrated that the accused systems actually had numerous non-infringing uses and, therefore, found that the allegations of contributory infringement could not be sustained. Finally, the court held that the complaint failed to plausibly plead that the defendants had the requisite specific intent to induce infringement. The amended complaint was dismissed.
With respect to direct infringement, the Federal Circuit reversed and held that “as long as the complaint in question contains specific factual allegations to meet the requirements of Form 18, the complaint has sufficiently pled direct infringement.” Opinion at 19. In discussing the pleading requirements for direct infringement, the Court pointed out that “Form 18 and the Federal Rules of Civil Procedure do not require a plaintiff to plead facts establishing that each element of an asserted claim is met…Indeed, a plaintiff need not even identify which claims it asserts are being infringed.” Opinion at 17. Addressing the interplay between recent Supreme Court precedent and Form 18, the majority opinion states that “to the extent the parties argue that Twombly and its progeny conflict with the Forms and create differing pleadings requirements, the Forms control..” Opinion at 15.
In addressing the counts of indirect infringement, the Court found that “[t]he Forms are only controlling for causes of action for which there are sample pleadings.” Opinion at 20. “[B]ecause Form 18 addresses only direct infringement, we must look to Supreme Court precedent for guidance regarding the pleading requirements for claims of indirect infringement.” Id. In other words, to adequately plead indirect infringement, the complaint must plead facts sufficient to plausibly establish each element of the cause of action. With respect to contributory infringement, this includes, inter alia, facts sufficient to establish that the accused components have no substantial non-infringing uses. For inducement, this requires facts sufficient to reasonably infer that the defendant had the specific intent to induce infringement. Merely reciting the elements without a factual pleading to support those elements will not suffice.
The Court found that the detailed factual allegations set forth in the complaint actually undermined the allegation of contributory infringement by establishing that the accused products have substantial non-infringing uses. “Where a product is equally capable of, and interchangeably capable of, both infringing and substantial non-infringing uses a claim for contributory infringement does not lie.” Opinion at 23. In this case, the Federal Circuit found that plaintiff’s complaint “supplies the very facts which defeat its claims of contributory infringement.”
Turning to inducement, with its specific intent element, the complaint included allegations that defendants’ employees had made statements touting the benefits of the patented method and that these statements were made after the defendant had received a cease and desist letter making it aware of the asserted patent. Under these facts, the Federal Circuit agreed that sufficient facts were pled to make a plausible allegation that defendants “intended to induce its customers to use its products to practice the patented method and did so with knowledge of the patent.” Opinion at 29. At the pleading stage, the “’plausibility requirement…simply calls for enough facts to raise a reasonable expectation that discovery will reveal’ that the defendant is liable for the misconduct alleged.” Opinion at 30, citing Twombly. Here, the Federal Circuit found that the complaint was sufficient to meet this standard.
In summary: for direct infringement, Form 18 is sufficient. For Indirect infringement (or other cause of action not covered by a specific Form), Twombly and its progency control and the complaint must set forth a factual basis to support a reasonable inference that each element of the cause of action is satisfied. For contributory infringement, use caution in pleading facts that may establish non-infringing uses for an accused product.
Tuesday, June 12, 2012
A couple of weeks back, the Federal Circuit decided In re
Baxter, affirming a patent office Board decision of
obviousness. 2011-1073, May 17, 2012. That
result, by itself, is hardly noteworthy.
The Board was addressing a patent in an ex parte reexamination, that not
surprisingly, was brought by a defendant involved in a patent infringement
action, Fresenius, USA , Inc. So, an
unsurprising result, with an unsurprising history. Why then, are we even talking about this
case? OK, here is the twist. In the litigation, the district court held that
Fresenius failed as a matter of law to meet its burden to prove invalidity of
the asserted claims. That decision was
appealed and the Federal Circuit affirmed, holding that “Fresenius failed to
present any evidence- let along substantial evidence- that the structure
corresponding [to one claim element] existed in the prior art.” Fresenius USA, Inc. v. Baxter,
Int’l 582 F.3d 1288, 1299 (Fed. Cir. 2009). Now, three years later, based on largely the same (but not quite identical) prior art,
the Federal Circuit affirmed the Board decision that the same claims previously affirmed are indeed
invalid as obvious.
Why the different result? The short answer is that the Board decision is based on a different evidentiary standard, there is no “presumption of validity” in reexaminations, and the standard of appellate review for board decisions is deferential, applying a “substantial evidence” standard. The original holding in Fresnius was not that the asserted claims were valid. It was a holding affirming that the defendant did not meet the clear and convincing standard to establish invalidity. In contrast, in order to reverse the Board's finding of invalidity, the Federal Circuit would have had to find that the decision was not supported by substantial evidence. In this case, the Federal Circuit found the Board’s decision was well supported. Opinion 14-15.
Baxter decision highlights
tension in the roles of the district court and the patent office. Typically, when a party looses an issue and
all appeals are exhausted, that issue cannot be relitigated by that party. Typically, government agencies are bound by final decisions of the courts.
However, the Baxter court deferred to
Congress and its own precedent noting that “Congress has provided for a
reexamination system that permits challenges to patents by third parties, even
those who have lost prior judicial proceedings.” Opinion at 15. As a result, unless Congress decides to change the
reexamination statute, the possibility remains that a party seeking to
invalidate a patent can take two full bites at the apple.
Tuesday, May 15, 2012
As reported by my partner, Ron Moscona, according to the recent decision of the Court of Justice of the European Union (“ECJ”) in SAS Institute Inc. (“SAS Institute”) v World Programming Ltd (“WPL”), the defendant did not infringe the claimant’s copyright by effectively reverse engineering the SAS software and writing a new program closely emulating the functionality of the SAS software. The decision of the ECJ lays down an important statement of principles in relation to the extent to which copyright protects computer programs (but not their functionality) under European Union law, although in respect of some practical aspects of the matter the Court’s decision fails to provide useful guidance.
Check out Ron's full article on this case by clicking here.
Check out Ron's full article on this case by clicking here.
Friday, March 30, 2012
The Supreme Court has again wrestled with the topic of patent eligible subject matter. Mayo Collaborative Services v. Prometheus Laboratories. The bad news - I am too busy with my real work to write about this case. The good news - some others in my firm were able to write a short article to help us all understand this issue better.
Click here to read the article and get some insights on the latest regarding the scope of what can and can't be patented.
Many thanks to Kimpton Eng, Jennifer Lane Spaith, and Elen Wetzel for preparing this to educate us all!
Click here to read the article and get some insights on the latest regarding the scope of what can and can't be patented.
Many thanks to Kimpton Eng, Jennifer Lane Spaith, and Elen Wetzel for preparing this to educate us all!