The Supreme Court is Set to Significantly Re-Shape Patent Rights and Litigation

The Court Agrees to Hear Three Patent Cases in 2011

The Supreme Court has agreed to hear three patent cases in its upcoming term. The first case touches upon the standard for establishing intent in the context of inducement of infringement. In October, the Supreme Court granted certiorari in Global-Tech Appliances Inc. v. SEB S.A. on the question of “whether 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.” The difference in these standards, essentially the difference between “known” and “should have known,” will significantly effect the way that businesses deal with third party patents from the point of conducting clearance searches and obtaining opinions all the way through trial.


The second case on the Supreme Court docket is Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems. In this case, the Supreme Court will consider ownership rights to inventions that were made with government funding under the Bayh-Dole Act. Although this case addresses a fairly narrow question, it could prove to be a significant case to universities and research institutions which rely heavily on federal research grants to sponsor wide ranging research projects which are the source of many inventions.


The third case, Microsoft v. i4i Ltd. 10-290, could prove to have a fundamental impact on every patent case, as it deals with the core issue of the burden of proof for establishing invalidity of a patent claim.


On November 29, 2010, the Supreme Court granted Microsoft’s petition for a writ of certiorari on the question “did the court of appeals [for the Federal Circuit] err in holding that Microsoft’s invalidity defense must be proved by clear and convincing evidence?”  As noted in a previous posting, Microsoft's petition was supported by numerous amici.

 At trial, Microsoft’s invalidity defense was based on a lack of novelty due to a prior sale of the patentee’s own earlier software. This prior art was not before the patent office during examination and was not considered by the patent examiner. Despite the fact the patent office never had the opportunity to consider this prior art, the patent benefited from the “presumption of validity” and the district court (bound by Federal Circuit precedent) rejected Microsoft’s request for a jury instruction seeking to prove invalidity only by a “preponderance of the evidence." The Federal Circuit affirmed, setting the stage for Microsoft's petition.

The Microsoft case has the potential to significantly change the nature of patent litigation and level the playing field between plaintiffs and defendants. If the Supreme Court reduces the burden of proof for proving invalidity on issues that were not before the patent examiner to a preponderance of evidence, defendants will face a far less daunting task in establishing a successful invalidity defense. Considering the less stringent standard for establishing obviousness under the Supreme Court’s holding in KSR, lowering the burden of proof required to establish an invalidity defense would certainly reduce perceived strength of every issued patent.

A NEW “STANDARD” FOR INFRINGEMENT

Proof of Compliance With A Standard May Establish Infringement

In a decision that will likely impact the wireless and telecom sectors for years to come, the Federal Circuit clearly held that “a district court may rely on a an industry standard in analyzing infringement.” Fujitsu Ltd. et al. v. Netgear, Inc., 2010-1045, September 20, 2010. Rather than requiring proof infringement for each individual accused product,

“if a district court construes the claims and finds that the reach of the claims includes any device that practices a standard, this can be sufficient for a finding of infringement. We agree that claims should be compared to the accused product to determine infringement. However, if an accused product operates in accordance with a standard, then comparing the claims to that standard is the same as comparing the claims to the accused product.”

In other words, the Federal Circuit held that proof a standard compliance can be sufficient circumstantial evidence to establish infringement.



To defend against an allegation of infringement based on a practicing-the-standard theory, “an accused infringer is free to either prove that the claims do not cover all implementations of the standard or to prove that it does not practice the standard.” Further, the Federal Circuit recognized “that in many instances, an industry standard does not provide the level of specificity required to establish that practicing that standard would always result in infringement.” In some cases, “the relevant section of the standard is optional, and standards compliance alone would not establish that the accused infringer chooses to implement the optional section.” In such cases, the plaintiff cannot rely on the standard alone to establish infringement.



From a plaintiff’s perspective, the cost and complexity of proving infringement when an industry standard is involved may now be greatly reduced. Rather than proving that numerous complex devices meet every element of the claim, the patent owner now must establish that the relevant portion of the standard in question (1) always infringes the claim, i.e. “a patent covers every possible implementation of a standard,”; (2) is mandatory for compliance with the standard,  and (3) the accused device is compliant with the standard. The significant advantage for the plaintiff is that elements (1) and (2) need only be proven once, rather than for each accused product. In cases like Fujitsu, which dealt with the 802.11 wireless standard and involved a large number of accused products, this results in a significantly lower burden for the plaintiff to carry.



Fujitsu reiterates that it is not enough for a plaintiff to establish that an accused device is "capable of infringement; the patent owner must show evidence of specific evidence of direct infringement."  Thus, when a feature in the standard may be switched on and off or is optional for compliance, proof of compliance with the standard is not enough.  The plaintiff must then prove that the switchable or optional feature was actually implemented and used in the accused device.

Since there are a large number of cases pending, and likely many more coming, involving industry standards featuring devices, such as cell phones, Wi-Fi, Wi-Max and Bluetooth compliant devices, this will certainly be an issue presented time and time again in the foreseeable future.

Where In The World Is The “Offer to Sell”?

It Doesn’t Matter for Liability Under 35 U.S.C. 271(a)

In Transocean v. Maersk Contractors, 2009-1556 (Fed. Cir., Aug. 18, 2010) the Federal Circuit dealt squarely with the issue of an offer to sell made outside the U.S. for use of a product in the United States. The facts were largely undisputed. A contract was entered into in Norway by two U.S. companies for the use of an oil drilling ship within the U.S. waters in the Gulf of Mexico. The ship was made outside the U.S. pursuant to the contract. The ship was later modified to be non-infringing (pursuant to an earlier order entered in a different case), so use of the actual modified ship was found not to be an act of infringement. However, the contract contemplated the unmodified design and this design was therefore the subject of the “offer to sell.”


The Federal Circuit held that:
Opinion at 19.  Thus, it is now clear: It doesn’t matter where the offer is made, only where the future sale is contemplated. If that contemplated sale is directed to the U.S., liability for infringement under 35 U.S.C. 271(a) may attach for the offer. Of course, if there is only an offer and no actual infringing sale, damages may become a difficult question. That, however, is a question for another day.

In order for an offer to sell to constitute infringement, the offer must be to sell a patented invention within the United States. The focus should not be on the location of the offer, but rather the location of the future sale that would occur pursuant to the offer.

Although not an issue squarely presented in Transocean, the language of this opinion suggests that an “offer” that is made within the United States, but contemplates performance outside the United States would not be within the scope of 35 U.S.C. 271(a).  In reaching its holding, however, the Court noted the policy considerations that underlie it holding.  The Court stated that “[a company making an offer outside the U.S.] would generate interest in its product in the U.S. to the detriment of the U.S. patent owner, the type of harm that offer to sell within the U.S. liability is meant to remedy.”  Despite this policy guidance, it would seem that, at least in some cases, an offer made in the U.S. for a sale contemplated outside the U.S. could also have a negative impact on the U.S. patent owner, yet under a fair reading of Transocean may not be actionable.

Federal Circuit Further Refines Design Patent Analysis Post-Egyptian Goddess

Over the last few months, the Federal Circuit has issued three precedential opinions that provide further guidance (or some might say misguidance) regarding the analysis of design patents in the post Egyptian Goddess era.

Claim Construction and Functional Elements in Design Patents

NO INFRINGEMENT

On March 9, 2010, the Federal Circuit decided David A. Richardson v. Stanley Works, Inc. (2009-1354) and addressed the manner in which functional elements of a design patent should be addressed in claim construction and infringement of design patents. The patented design and a representative drawing of the accused "fubar" product are illustrated above. The district court construed Richardson's design patent by noting that what was claimed was that "shown and described in the '167 patent." The district court then continued by identifying those elements that were ornamental and excluding those elements that were deemed functional. Having so construed the claim, the district court held that the accused "fubar" did not infringe Richardson's design patent.

The Federal Circuit affirmed. With respect to claim construction, the Federal Circuit rejected the Richardson's position that Egyptian Goddess effectively overruled cases such as OddzOn Prods. v. Just Toys, Inc., 122 F.3d 1396 (Fed. Cir. 1997) where the court held that "[w]here a design contains both functional and non-functional elements, the scope of the claim must be construed in order to identify the non-functional aspects of the design as shown in the patent." The court further stated that "[a] claim to a design containing numerous functional elements, such as here, necessarily mandates a narrow construction." The court went on to discount the contribution of a myriad of functional elements in the claimed design and agreed with the district court's conclusion that "[f]rom the perspective of an ordinary observer familiar with the prior art, the overall visual effect of the Fubar is significantly different from the Stepclaw [patented design]."  From this ordinary observer's point of view, this holding had way more analysis than was needed to affirm - the two designs shown above are just too different.

Invalidity of Design Patents
On December 17, 2009, the court decided International Seaway Trading Corp. v. Walgreens Corp. (2009-1237), and held that the test for anticipation of a design patent is the same as the test for infringement, which is the "ordinary observer" test. The point of novelty test, abolished from the infringement analysis in Egyptian Goddess, is now a thing of the past in the validity context as well.  As a result, a piece of prior art need not be exact to anticipate a design patent claim, it must only satisfy the standards of the "ordinary observer" test.  "Just as 'minor differences between a patented design and an accused article's design cannot, and shall not, prevent a finding of infringement,' [cite omitted] so too minor differences cannot prevent a finding of anticipation."

Although dicta, the International Seaway court also discussed the test for obviousness of design patents. Here, the court stated that '[f]or design patents, the role of one skilled in the art in the obviousness context lies only in determining whether to combine earlier references to arrive at a single piece of art for comparison with the potential design or to modify a single prior art reference. Once that piece of prior art has been constructed, obviousness, like anticipation, requires application of the ordinary observer test, not the view of one skilled in the art." This sounds like something new. Indeed, in setting out this proposition, the court did not cite any precedent. Further, the "ordinary observer" test in this context may be viewed as inconsistent with the language of 35 U.S.C. 103(a) which states that a "patent may not be obtained though the invention is not identically disclosed or described as set forth in section 102 of this title, if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains." As noted above, the discussion regarding obviousness is properly viewed as dicta.  It will be interesting to see how the law of obviousness of design patent claims develops in future cases, or if it become essentially moot in view of the broader play that the "ordinary observer" gives to the anticipation analysis.

Will differences in the insole design prevent anticipation?

The subject matter in Int'l Seaway was a design for foam clogs. The Federal Circuit held that the district court incorrectly omitted certain features (the insole design illustrated above) from its validity analysis, based on whether those features would be visible during "normal use." The Federal Circuit held that "normal use should not be limited to only one phase or portion of the normal use lifetime of an accused product," such as the time when a shoe is being worn. Instead, "normal use in the design patent context extends form the completion of manufacture or assembly until the ultimate destruction, loss, or disappearance of the article." Noting that the insole design depicted in the patent would be visible at various points in the life cycle of the article, the Federal Circuit found that it was an error for the district court to ignore these features in the validity analysis simply because they were not visible when the shoe was being worn. The court remanded for the district court "for further proceedings on the limited issue of whether the differences in the insole patterns between the prior (Crocs) are and the patented designs bar a finding of anticipation or obviousness." This remand order is somewhat troubling. As noted in J. Clevenger's dissent, "the ordinary observer test requires assessment of the designs as a whole." "[T]he differences in the inner sole designs must be appreciated in conjunction with all of the design differences." J. Clevenger aptly concludes that "[p]artial judgments of anticipation on segments of a design prohibit assessment of designs as a whole, in violation of long-standing law... ."  Although preaching a "design as a whole" analysis, the majority's holding and remand order is clearly fostering an approach that will encourage a district court's "dissection of a design as a whole into its component pieces."

Claim Construction and Domestic Industry for Design Patents
On February 24, 2010, the Federal Circuit issued its opinion in Crocs, Inc. v. Int'l Trade Commission (2008-1596). In this case, the court reversed ITC determinations of no infringement and no domestic industry of Crocs' design patent. Despite earlier warnings from the Federal Circuit that construing a design patent claim in words, rather than by simple reference to the figures, was a risky proposition, the ITC issued a narrow claim construction that focused on areas of difference between the claimed design and the accused product. The Federal Circuit criticized the commission’s "concentration on small differences in isolation distracted from the overall impression of the claimed ornamental features." Instead, "[t]he proper construction requires a side-by-side view of the drawings of the [patent design] and the accused products." Despite some obvious differences apparent (to me at least) in some to these comparisons, the court found that "these side-by-side comparisons...suggest that an ordinary observer, familiar with the prior art designs would be deceived into believing the accused products are the same as the patented design."  Unfortunately, the Federal Circuit opinion does not reference the "prior art designs," so it is not clear how to evaluate the differences between the claimed design and the accused products.  (An example of the images shown in the Federal Circuit opinion are shown below in the first two images (side view).  The top view illustrated below as compared with Fig. 6 of the patent where not part of the Federal Circuit's side-by-side comparison.  I don't know that I would be deceived here, but I suppose that reasonable "ordinary observers" are free to differ.) 

"NEARLY IDENTICAL" - DESIGN PATENT INFRINGED

With respect to the domestic industry requirement, the court found that Crocs' products were indeed within the scope of the design patent and those products therefore satisfied the "technical prong" of the domestic industry requirement.

Reflections On The Erosion of Method Claims

It wasn’t that long ago that patent practitioners held the view that means-plus-function claims were the broadest and best way to protect an invention. Over time, many learned (the hard way) that this isn’t true anymore. With means-plus-function claims being construed narrowly in view of the specification, it became increasingly popular to include method claims to cover the process taking place in the described apparatus. After all, what could be better than not being limited by any structural limitations? Well, as it turns out, the last couple of years have not been particularly kind to method claims.

Patentable Subject Matter:

Today the Supreme Court is hearing oral argument in Bilsky, a case that many feel will significantly redefine the scope of patentable subject matter for method claims. (And providing motivation for today's musings.) Bilsky is the culmination of at least a two year trend at the Federal Circuit where 35 U.S.C. 101 has been increasingly applied as the basis for denying patent protection for claims directed to methods. The Federal Circuit's now infamous “machine or transformation test,” set forth in Bilsky represents a considerable narrowing of patentable subject matter for methods. Clearly, those post-State Street feel good days for business method patents are behind us for the moment. But, Bilsky and Section 101 is a subject all its own (and the subject to countless other posts and articles), so lets move on to some other issues.

Infringement of Method Claims

Divided Infringement:
Last year, in Muni-Auction v. Thomas, 532 F. 3d 1318 (Fed Cir. 2008) the Federal Circuit addressed the issue of infringement of a method claim when two or more entities were required to act in order to perform all of the steps of a claimed method. In the patent in dispute in Muni-Auction “at least the inputting step of claim 1 is completed by the bidder, whereas at least a majority of the remaining steps are performed by the auctioner’s system.” Id. at 1328. In finding that there was no direct infringement (and therefore no predicate for third party liability based on inducement or contributory infringement) the Federal Circuit looked to the relationship between the bidder and the auctioner. The court held that:

Accordingly, where the actions of multiple parties combine to perform every step of a claimed method, the claim is directly infringed only if one party exercises “control or direction” over the entire process such that every step is attributable to the controlling party, i.e., the “mastermind.” [Citation omitted] At the other end of this multi-party spectrum, mere “arms-length cooperation” will not give rise to direct infringement by any party.

* * *
Under BMC Resources, the control or direction standard is satisfied in situations where the law would traditionally hold the accused direct infringer vicariously liable for the acts committed by another party that are required to complete performance of a claimed method.

Although the holding in Muni-Auction is consistent with earlier cases on the issue of divided infringement, such as BMC Resources v. Paymentech, L.P., 498 F.3d. 1373 (Fed. Cir. 2007), this decision seems to raise the bar regarding the nature of the relationship required in order to find liability under a “divided infringement” theory. Under Muni-Auction, to establish infringement of a method claim under a divided infringement theory, one must not only show that the entities involved perform all of the steps within the scope of the claim, but must also establish a close legal relationship among those entities.

Steps performed Abroad:

In August, an en banc Federal Circuit addressed whether a method claim could be infringed under 35 U.S.C. 271(f). The Court held that “because one cannot supply the step of a method, Section 271(f) cannot apply to method or process patents.” Cardiac Pacemakers v. St. Jude Medical, 2007-1296 (Fed. Cir., August 19, 2009). The court further held that “271(f) does not encompass devices that may be used to practice a patented method.” Id. at 30. Thus, a device built in the United States that is capable of performing a patented method, but does not actually perform that method in the United States, does not infringe a claim to the patented method under 35 U.S.C. 271(a) or (f). Again, without direct infringement, there is no basis for assertions of third party liability based on threats of inducement or contributory infringement.

Going back a few years, in NTP v. Research in Motion, the Federal Circuit held that “a process cannot be used ‘within’ the United States as required by section 271(a) unless each of the steps if performed within this country.” 418 F.3d 1282, 1318 (Fed. Cir. 2005)(en banc)(emphasis added). In contrast, the Court also held that “use of a claimed system under section 271(a) is the place at which the system as a whole is put into service, i.e., the place where control of the system is exercised and beneficial use of the system obtained.” Id. at 1317 (emphasis added). Unlike the method claim, for the system claim, the Federal Circuit upheld the finding of infringement even though one component of the claimed system was not present in the United States.

Conclusion

Whether the Supreme Court limits or expands the scope of patentable subject matter in Bilsky, it is apparent that the scope of method claims have already been limited. For those who thought (or just hoped) that method claims were the next best thing since means-plus-function claims…well, just like with means-plus-function claims, this was a good theory put to rest by subsequent case law. Its now time to adapt again.


Common Sense Practice Note: Things that today are considered "conventional wisdom" may not always have been considered "conventional" in the past, and may not always be considered "wisdom" in the future. For patent practitioners, the best strategy remains timeless - keep applying for claims of varying format, varying subject matter and varying scope, since one never knows what tomorrow may bring.