The Federal Circuit Opens the Door to an Additional Defense to Inducement

It is well established law that liability for inducement requires the specific intent to induce another to infringe.  It is also well established law that a defendant may rely on a good faith belief that the there is no patent infringement to defeat the intent element.  See DSU Medical Corp. v. JMS Co. Ltd., 471 F. 3d 1293 (Fed. Cir. 2006) (en banc).  What was not clear from the Federal Circuit's precedent, was whether a defendant’s good faith belief that the patent in question was invalid could also be used as evidence to overcome an allegation of inducement.  That question has now been answered.  In Commil USA v. Cisco Systems 2012-1042 (Fed. Cir. June 25, 2013), the majority held that “evidence of an accused inducer’s good-faith belief of invalidity may negate the requisite intent for induced infringement.”  Opinion at  11.  This holding, however, does not establish a bright line defense, as the Court went on to say “[t]his is, of course, not to say that such evidence precludes a finding of induced infringement. Rather, it is evidence that should be considered by the fact-finder in determining whether an accused party knew  ‘that the induced acts constitute patent infringement.’” Id. (citations omitted).

Judge Newman was on the three judge panel and issued a strong dissent.  A small snippet from her dissenting opinion captures the theme:

A good-faith belief of patent invalidity may be raised as a defense to willfulness of the infringement, but it is not a defense to the fact of infringement. Patent invalidity, if proved, eliminates an invalid patent and thus is a total defense to infringement. However, a “good-faith belief” in invalidity does not avoid liability for infringement when the patent is valid.1 No rule eliminates infringement of a valid patent, whether the infringement is direct or indirect. Newman Dissent at 2

The practical impact of this decision is significant.   Evidence that a party believed a patent was invalid, such as an opinion of counsel of invalidity or a well-founded reexamination request, is now clearly admissible evidence that can be presented not only to defend against willfulness (a damages issue), but also to defeat a showing of liability when the theory of infringement rests on inducement.

En Banc Federal Circuit Permits Appeals Prior to Damages and Willfulness Determinations

One of the guiding principles of appellate jurisdiction is the “final judgment rule” that defers jurisdiction of an appellate court “until there has been a decision by the district court that ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.”  Firestone Tire & Rubber Co. v. Risjord, 449 U.S. 368, 373 (1981).  Much to the chagrin of many a patent litigator and litigant, it is this principle that precludes most interlocutory appeals (such as review of claim construction orders), no matter how important the issue may be.  There is, however, an exception to the final judgment rule with respect to the Federal Circuit’s jurisdiction hidden away in 28 U.S.C. 1292(c)(2), that permits interlocutory appeals when a judgment is final “except for an accounting.” The en banc Federal Circuit in Robert Bosch, LLC v. Pylon Manufacturing Corp., 2011-1363, 1364, June 14, 2013, took on the question (sua sponte) whether an “accounting” as used in Section 1292(c)(2) includes (1) a trial on damages; and (2) a trial on the issue of willfulness.  A divided court (yet again) held that, yes, the Federal Circuit does have jurisdiction over a case that is final on all issues other than damages and willfulness.

               The en banc decision comes complete with the majority opinion, two opinions concurring-in-part and dissenting-in-part and a fourth opinion by O’Malley dissenting.  It would be both fun and worthwhile to dive into the details of the four opinions and analyze the continued fractures in the court on this issue (and in general), but other than law school professors, who has the time!   Suffice it to say that unless and until the Supreme Court chimes in on this issue, district court judges now know that should they decide to bifurcate issues of damages and willfulness (as is Judge Robinson’s practice in D. Del.),  that decision will not impair the ability of the parties to appeal a judgment on the liability issues.  

Design Patent Practice UPDATE – Use Caution in Con’s

In prosecuting design patent applications, it is common practice to use dashed lines to depict a feature of the design that is illustrated for context or environment, but is not considered to be part of the claimed design.  In continuation practice, it has also been common practice to broaden the originally claimed design by amending the drawings to change solid lines in the original design – which show what is claimed – to dashed lines depicting unclaimed boundary lines.  This later practice was recently considered, and significantly limited, by the Federal Circuit in In re Owens, 2012-1261, Fed. Cir., March 26, 2013 (“Owens”).  In Owens, the Federal Circuit affirmed the PTO’s rejection of Owens’ claimed design since the parent was deemed to lack adequate written description for the continuation (so he could not claim the benefit of the earlier filing date) and Owen had sold product more than one year prior to the filing date of the continuation.  As it turns out, the problem Owens had was not with what he took out of the original claimed design, but what he put in—a single dashed line intended to indicate that Owens was claiming part, but not all, of a surface from the original design.

Owens’ original application claimed the design of a mouthwash bottle design, as shown below.  This application issued as D531,515.  In an effort to get broader protection, Owens filed a continuation application in which he dashed out all lines except those defining four triangular shoulder portions and two small crescent portions bounded by the shoulder portions.  Owens also wanted to claim a portion or the surface bounded by the triangular shoulders and the crescent portion.  To depict where the portion of the surface that was being claimed ended, Owens added a dashed line on the upper portion of the surface and removed the shading lines below the dashed line.  Significantly, there was no existing contour line where this new dashed line was being added.  It is this new dashed line, that all parties agree defines an unclaimed boundary, that is the center of the controversy in this case.

 

The patent examiner concluded that the newly added dashed line defined a “new” trapezoidal surface that was not previously claimed and this newly claimed feature meant that Owens could not claim the benefit of the original application’s filing date.  It was the examiner’s view that Owens was not in possession of the claimed subject matter that only included a portion of the disclosed surface, at the time of the original filing.  (In other words, there was insufficient written description under 35 U.S.C. 112 para. 1 in the original application for the new claim.)  Since Owens had sold bottles (of the original design) more than 1 year prior to the filing date of the continuation application, the examiner rejected the application under 35 U.S. C.  103 as being obvious over Owens’ own prior art sales.  The PTO board of appeals affirmed.

In affirming the PTO’s rejection, the Federal Circuit noted that the written description requirement for design and utility patents is the same.  The court further noted that “when the issue of priority arises under 120 in the context of design patents prosecution, one looks to the drawings of the earlier application for disclosure of the subject matter claimed in the later application.” [Opinion at 7, citations omitted]    To distinguish over In re Daniels, 144 F. 3d 1455 (Fed. Cir. 1998) the court arrived at the somewhat strange result that removing an element in its entirety (as was the case in Daniels) is permissible whereas removing only a portion of the element (as Owens attempted to do) runs afoul of the written description requirement.  Although the question was not before the court, it seems that had Owens simply dashed out the original contour lines and not added the dashed line dividing the original surface (which would have made the claim even broader), the panel, following In re Daniels, would have been inclined to accept that as a proper amendment resulting in a claim that was supported by the original application. 

Owens will likely be significant in shaping future design patent litigation and prosecution.  A substantial number of design patents have issued from continuation applications in which the applicant broadened the original claim by adding dashed lines to define part of a previously claimed feature.  Under Owens, the priority date of these patents, and the underlying validity of the patent claim, will be open to new challenges.  During prosecution, care must be taken when preparing continuation applications.  Going forward, a prudent course may be to file the original design application with figures depicting a number of embodiments of varying scope ranging from the complete design to individual features that may be novel, non-obvious and commercially important.  This strategy will invite a restriction requirement from the PTO and divisional practice, but it will be far easier to demonstrate that the original application fully supports the later filed cases and avoid a later problem with written description.

More on the SHIELD ACT

In my post last week, I provided some of my views on the recently proposed SHIELD Act.

For some additional and differing thoughts on this topic, here is a recent article written by one of my partners, Ken Levitt, also discussing (and generally supporting) this proposed legislation.

The SHIELD Act - Is creating “second class citizenship” for certain patent owners the answer to the “troll problem”?

Rep. Peter DeFazio recently introduced a bill to the House, H.R. 845, cited at the “Saving High-Tech Innovators from Egregious Legal Disputes Act of 2013,” or by its cooler, short-hand name, the SHIELD Act.  The SHIELD Act has a noble purpose.  After all, who can argue with the proposition that innovators deserve saving from egregious legal disputes?  Despite the noble purpose, however, it is reasonable to question whether the method being employed by this bill – singling out a class of patent owners for disparate treatment by the courts – is the right way to solve the “problem.”  Let’s explore.

First, let’s consider what I perceive to be the real problem.  There has been a growing trend over the last decade for third parties to acquire patent rights as an investment vehicle and assert those rights to obtain a return on their investment.  Unfortunately, in many cases, the assertion is utterly baseless, yet respectable companies with a need to make reasonable business decisions are compelled to pay to settle these cases because it is far less expensive to pay than it is to fight and win.  This is certainly a problem:  bad actors bringing frivolous patent suits against good companies with the goal of extracting a settlement from those good companies based on the rational business judgment that it is far less expensive to settle the frivolous suit rather than pay much larger legal fees to prove non-infringement and invalidity.  No one can reasonably defend this type of abusive conduct and any legislation that could effectively eradicate this bad behavior, without prejudicing patent owners that did not engage in such egregious conduct, would be a tremendous benefit.  The question is, does the SHIELD Act acomplish this difficult goal?

The SHIELD Act has at its core a loser-pays provision that will require some patent owners (hint – NPE’s) to “post a bond in an amount determined by the court to cover the recovery of full costs [which include “reasonable attorney’s fees”].  If the patent owner does not prevail, on both infringement and validity,  “the Court shall award the recovery of full costs to any prevailing party asserting invalidity or noninfringement…upon the entry of a final judgment if the court determines that the adverse party did not meet at least one of the conditions described in subsection (d),” which defines the special class of patent owners subject to this Act.

Looking at subsection (d), the act applies to all patent owners, except those that fit into an enumerated exception.  These exceptions serve define who is a “good” patent owner who is outside the scope of the act.  The exceptions in subsection (d) include (1) the “original inventor” or “original assignee” at the time of patent issuance, (2) a party that can demonstrate “substantial investment…in the exploitation of the patent through production or sale of an item covered by the patent,” or (3) “University or Technology Transfer Organization[s]."  When you take out these exceptions, the SHIELD Act applies to entities that acquire the patent from the original owner and do not currently practice the invention.  This second-class of patent owners would be required to post a bond to cover the defendant’s litigation costs – typically in the 1-3 Million dollar range for a “simple” patent case with less than $25 Million in dispute – and risk forfeiting this amount if they don’t win at trial.  It is important to note, that the fees are not paid as a result of baseless litigation or misconduct.  It is simply because the patent owner does not prevail.

Even though I often represent corporate defendants accused of patent infringement by non-practicing patent owners, I am hesitant to define the “ NPE problem” more broadly to include all patent owners who don’t practice the patented invention but who have a reasonable and good faith basis to assert infringement. It is certainly a strategic concern for defendants that patent litigation against a non-practicing entity is the worst form of “assymetric warfare” with no upside for the defendant and little downside for the patent owner. It is also a practical business concern that once a defendant is named in a patent suit it is already a “loser” in that it must divert resources to address the suit, regardless of the merits. But, these concerns are not unique to patent litigation.   A patent is simply a bundle of rights, and those rights shouldn’t depend on the nature of the patent owner.   After all, even a landowner that is a complete jerk still has the right to enforce his no tresspassing signs and keep people off of his property.

The exceptions in the Act are intended to isolate “patent trolls” but will not be so limited.  For example, what happens if GOOD COMPANY assigns its patents to its own patent holding entity for tax or management purposes, e.g., GOOD COMPANY HOLDING LLC, (which is not uncommon), and it does not make a product within the scope of one of its patents but its competitor does with a directly competing product.   If GOOD COMPANY wants to bring suit to stop the infringement or secure a royalty from COMPETITOR, it would be subject to the SHIELD Act.  Lets go one step further and assume that COMPETITOR brought the first action and GOOD COMPANY asserted that same patent as a defensive counter-claim.  Same result, GOOD COMPANY is subject to the Act and may need to post a substantial bond in order to maintain its counterclaims.  What about an “original inventor” that wants to take advantage of the benefits of incorporation and assigns her rights to her company?  That small company formed by the “original inventor” is now subject to the SHIELD Act and must find a way to post a bond for several million dollars before bringing suit, regardless of how meritorious (or not) the suit may be.  It is not too difficult to think of more examples of how this Act may have unintended, or at least undesirable, consequences for many patent owners that are not "bad actors."

The SHIELD Act has a noble purpose in reducing the number of baseless patent infringement suits, but it seems to be punishing the wrong behavior.  The “problem,” as identified by the name of the Act, is “Egregious Legal Disputes.”  This is the conduct that patent reform needs to address rather than discriminating against a class of patent ownership that cannot be properly tailored to truly solve the “problem” without significantly impairing the value of all patents.  The bench, the bar and Congress each have a responsibility to keep looking at ways to curb litigation abuse and reduce litigation costs.  I applaud Congressman DeFazio’s efforts to curb litigation abuse, but the SHIELD Act, as it currently stands, does not seem to be the answer to the “problem.”

The opinions expressed above are ONLY mine and should not be attributed to Dorsey & Whitney, its clients, or anyone else. (This is always the case, but worth mentioning again in connection with this posting since reasonable minds can certainly differ on this topic.)

Recent and Upcoming Developments in Patent Law

GUEST AUTHOR:  Josh Engel, Dorsey & Whitney LLP

    Here’s a look at some of the recent and upcoming developments in the patent law realm in Q1 2013.

Patent Litigation Update

    Patent litigation continues to be very prevalent and very contentious as companies in many different industries continue to sue each other for infringement of each others’ patents.  Beyond the Apple v. Samsung family of cases that seem to dominate most media coverage of patent litigation, hundreds and thousands of other patent infringement cases quietly move along in the background.  Marvell, a semiconductor manufacturer, lost a patent lawsuit to Carnegie Mellon University in December 2012, and was ordered to pay $1,169,140,271 in damages, which may be tripled in the end if Carnegie Mellon can show willfulness.  The jury found that Marvell infringed just two claims related to signal/noise processing in computer memory technology.  Just a few months earlier, in August 2012, Monsanto won a $1,000,000,000 award against DuPont for infringing Monsanto’s patents on roundup-ready plant technology.  And, of course Apple was awarded $1,050,000,000 against Samsung in an extremely contentious lawsuit over smartphone technology. 

    While these cases are clearly outliers, and the vast majority of patents never become nearly so important, the trend of patent litigation is increasing, and the need for companies to secure their own patents for offensive use, as well as the need to be ready to defend against competitors’ patents, continues to be vital for companies in technology-heavy industries.

Patentable Subject Matter

    One of the most divisive issues in patent law today is “what is patentable?”  Software and human-gene-related inventions are currently in the cross-hairs, as the Federal Circuit (the appeals court that hears all patent-related cases) and the US Supreme Court consider what types of inventions should be eligible for patent protection.  Software patents, in particular, have strong proponents on both sides of the argument, with some arguing that mere computer code should not be patentable because it is too ‘abstract’ and others arguing that excluding patent protection for software would wreak havoc for nearly every technology company that depends on patent laws to prevent competitors from copying innovative system control inventions.  Within the next few months, the Federal Circuit will hear arguments and decide a case that will likely shape the software patentability debate for years to come. 

Upcoming – Patent Law Changes Effective March 16, 2013

    As part of the America Invents Act (AIA) signed into law in 2011, on March 16, 2013, the United States will join the rest of the world in having a “first-to-file” patent system.  This is a change from our previous “first-to-invent” system, and the most practical effect is that patent applications filed after March 15 will be examined under a different set of guidelines, at increased cost, and with more prior art available to the patent office to reject patent applications.  There are also procedural changes for patent applications filed after March 15, and new ways to challenge a granted patent.  In general, the best practice is to file a patent application before March 15, if at all possible, so that it gets examined under the previous “first-to-invent” rules.  After March 15, it will be all the more important to be diligent in identifying patentable inventions and getting applications for those inventions on file as quickly as possible.  Any delay can result in a competitor winning the “race to the patent office.”

Upcoming – Unified European Patent

    One of the most costly and complex regions of the world in which to obtain and pursue patent protection, Europe, is likely to get a facelift soon.  In December 2012 the framework was set for implementation of a unified European patent, which would streamline obtaining and enforcing patents throughout most of Europe.  Member states still must sign onto the program, but at this point it looks like most all of Europe will participate, with the notable exceptions of Spain and Italy (who will likely dissent because the official languages of the unified patent, if you will, are English, French, and German).  The unified patent program would eliminate or greatly reduce translation, validation, and maintenance fee costs in each European country that presently cost patentees thousands of dollars, and would also provide a common set of rules by which European patents are examined and enforced. 

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EDITOR'S NOTE - Many thanks to Josh Engel for providing this piece for use on the Point of Novelty!

Extra, Extra! Despite Current Reports, The Patent System is Not Stifling Innovation

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, Kent Schmidt, 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, 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."