"A Million dollars isn't cool. You know what's cool? A Billion dollars!"

What does this quote from the movie "The Social Network" have to do with patent law?

You don't often hear "cool" being used in connection with patents and patent litigation, but lately we have been hearing Billion bantered about with incredible frequency.  Some notable examples include:

• Projections of the potential settlement value to Kodak of the current ITC action against Apple and Rim, which the Commission is set to act on this week.
• The ultimate price of the Nortel patent portfolio, which has a $900 Million "stalking horse" bid from Google, and significant interest from several cash-rich companies that could easily drive the final price well over a Billion dollars.
• The damages calculation of $2.6 Billion offered by Oracle's expert, now being disputed, in a case against Google involving the Android operating system. 

If there was any doubt about the continued value and vitality of patents as a tool for promoting innovation and advancing competitive business interests, these examples from this week's news should put that doubt to rest.  Maybe, just maybe, I can convince my kids that patents really are "cool."

Ackerman comments on Kodak ITC action in Marketplace

In the category of gratuitous self promotion, here is a link to a public radio broadcast (heard today on NPR) in which I provided some commentary to Marketplace on the Kodak ITC action involving cell phone cameras.  http://marketplace.publicradio.org/display/web/2011/06/22/am-kodak-battles-smartphones-over-camera-technology/

I thought I gave some better sound bites during the interview, and the one quote they used comes out  a bit in a vacuum without the context surrounding the quote, but I didn't have any input to the editing.

-Paul

The Supreme Court's Decision in Microsoft v. i4i - No Change

In Microsoft Corp. v. i4i, 10-200, the Supreme Court considered the issue of the appropriate standard of proof that is applicable when a party seeks to invalidate a patent.  The Federal Circuit has consistently held that the presumption of validity imposed a clear and convincing evidence standard.  Moreover, this standard applied even when the prior art relied upon by the defendant was not previously considered by the patent office.  Microsoft argued that the preponderance of evidence standard should apply to invalidity defenses, at least in those cases where a defendant presented evidence that was not considered by the patent office.  The Supreme Court rejected this argument and has unequivically held that the clear and convincing standard applies to assertions of patent invalidity.  In short, the decision can be summed up in two words - No Change.  

And that concludes the patent law Supreme Court Watch for this term.

Parrallel Networks – Recognition of a Patent Defendant’s “Hobson’s Choice” in the E.D. Texas

And the Start of a Trend to Help Defendants Deal With It?

Two (fairly) recent procedural orders from the Tyler Division of the Eastern District of Texas reflect a new approach to case management in patent cases, where defendant’s often face the no-win dilemma of settling a claim that they believe has little or no merit, or spending more than the settlement demand in defense costs to prove that it was not liable.

Imagine you’re a defendant in a “typical” multi-defendant patent case brought by a non-practicing entity. You look at the patent and the file history and try to make sense of the infringement allegation, but you can’t – no matter how you look at it, the claim is meritless. The plaintiff contacts you and offers to resolve the case with you for only $500K if you settle early, before both sides are forced to expend resources litigating the case. You know that it will cost over $1 Million to get through the discovery phase and claim construction proceedings and another million or more to get through summary judgment and trial. Given the ominous possibility of spending millions in legal fees to prove that your company did not infringe the plaintiff’s patent (and still have some risk that the judge or jury won’t agree), the $500K offer starts looking like a “reasonable” business resolution to the dispute, even though you are sure that the claim has no merit.

This scenario plays out on a regular basis in cases brought by non-practicing entities. The problem has been particularly acute in the Eastern District of Texas, a forum known to favor trials over summary judgment as the best tool for resolving disputes. The Local Patent rules, intended to efficiently and fairly move cases to trial simply do not provide a built in mechanism for a defendant to dispose of a weak case without spending hundreds of thousands or millions of dollars in defense costs. Plaintiff’s recognize and exploit this dilemma – filing suit against dozens, sometimes over a hundred, defendants, knowing full well that most, if not all, will settle for substantial amounts regardless of the merits of the claim.

Thus, the Hobson’s choice – pay the plaintiff and remove the risk, or pay defense counsel (maybe more than the settlement offer) and accept the risk of success.

Judge Davis faced this dilemma head-on in Parallel Networks v. Abercrombie & Fitch, et (6:10-cv-111) and to his credit, fashioned a procedural remedy to address this problem.  (See Memorandum Opinion and Order, D.I. 338, March 15, 2011).  In Parallel Networks, the plaintiff (a NPE) filed suit against 124 defendants in four related cases. In response to J. Davis’ inquiry, plaintiff’s counsel admitted that its litigation strategy involved offering defendants a substantial discount on potential liability to entice early settlement. The magnitude of the settlement offer was based less on a risk-based assessment of potential damages, but on the certainty of incurring significant defense costs.  J. Davis noted that “[p]laintiff’s strategy presents Defendants with a Hobson’s choice: spend more than the settlement range on discovery, or settle for what amounts to cost of defense, regardless of whether a defendant believes it has a legitimate defense.” Defendants’ counsel argued for a limited claim construction/summary judgment proceeding in which the parties would only address three (3) claim limitations that defendants’ argued as being case dispositive. J. Davis granted this request and significantly limited discovery until this motion is resolved. (A hearing is set for June 21, 2011).  The parties will be bound by the court’s construction of the three claim terms, but will not otherwise be prejudiced by this early summary judgment motion.


A month later, in Whetstone Electronics, LLC v. Xerox Corp., (6:10-cv-278) Magistrate J. Love, also in Tyler, followed suit and granted a similar order. (See Order, D.I. 156, April 7, 2011).  A Markman hearing on the three selected terms in this case is scheduled for July 13, 2011.


If these summary procedures successfully resolve these cases (in other words, if the defendants’ cases are as strong as they have suggested to the court) Parallel Networks may signal the start of a trend towards case management of multi-defendant cases in which the defendants have a meaningful procedure available to dispose of meritless cases without being driven to resolution solely by the cost to defend the case, regardless of the merits. To insure that this happens, however, defendants have an obligation to the court to deliver the goods. If, in every case, the defendants call for an expedited summary proceeding and fail to deliver clear positions where no questions of fact preclude summary judgment, it would not be surprising for the court to conclude that these procedures are not justified and revert to more traditional case management.


*** I started this post back in April, after the Whetsone order, but didn't get around to finishing it then.  Its not "hot news" anymore, but its still important so I thought it was worth posting now, even if its a bit late.

-Paul

The Supreme Court Interprets the Bayh-Dole Act as Not Automatically Conveying Inventions to Contractors

Yesterday, the Supreme Court issued its second patent related decision of the term in The Board of Trustees of Leland Stanford Junior University v. Roche Molecular Systems, 09-1159, a case addressing the issue of ownership of inventions made with government research funding. A 7-2 majority of the Court, lead by Chief J. Roberts, held that the Bayh-Dole act does not alter the fundamental proposition that ownership of an invention initially vests with an inventor, and as such, title does not automatically vest in a contractor, such as a university, when an invention is made with the support of federal funding.

This case involved competing agreements with an inventor: an agreement between the inventor and the university in which the inventor “agrees to assign” later made inventions and a second agreement with Roche in which the inventor immediately assigned a specific invention.

The “agree to assign” language did not operate as an immediate conveyance and the Supreme Court held that the "Bayh-Dole act does not automatically vest title to federally funded inventions in federal contractors or authorize contractors to unilaterally take title to such inventions."  As a result, Stanford was out of luck.


One significant take-away from this decision is that recipients of federal research funding cannot rely solely on the Bayh-Dole act and should review the language in employee and research agreements with respect to assignment of future inventions. Language in these agreements that impose an obligation in the future, such as "agrees to assign," should be replaced with affirmative language, such as "hereby does assign."

The Supreme Court Redefines the Knowledge Element of Inducement

The Supreme Court issued its opinion in Global Tech Appliances v. SEB S.A., 10-6 on May 31, 2011. The Global Tech case redefines the standard for the intent element of inducement under 35 U.S. C. 271(b).

Relying primarily on the Court’s longstanding ruling in Aro Mfg. Co. v. Convertible Top Replacement, Co., 377 U.S. 476 (1964)(“Aro II”), which addressed the knowledge requirement for contributory infringement under 35 U.S.C. 271(c), an 8-1 majority held that “induced infringement under 271(b) requires knowledge that the induced acts constitute patent infringement.” Slip Opinion at 10. The Court rejected the Federal Circuit’s “deliberate indifference to a known risk” standard, but affirmed the lower court’s finding of inducement without proof of actual knowledge by the infringer “because the evidence in this case was plainly sufficient to support a finding of Pentalpha’s knowledge under the doctrine of willful blindness.” Id. (emphasis added). Thus, the Supreme Court articulated a knowledge requirement for inducement that can be satisfied with constructive knowledge under the “willful blindness” doctrine.


The Court held further held that willful blindness has

two basic requirements:

(1) the defendant must subjectively believe that there is a high probability that a fact exists and (2) the defendant must take deliberate actions to avoid learning of that fact.

Opinion at 13.

The Court found that Pentalpha, which inter alia, had substantially copied a competitor’s product, and then had its patent attorney conduct a freedom to operate search for this product without informing him that the design was copied from a competitor. From this, the Court concluded that the “evidence was more than sufficient for a jury to find that Pentalpha subjectively believed there was a high probability the SEB’s fryer was patented, that Pentalpha took deliberate steps to avoid knowing that fact, and that it therefore willfully blinded itself to the infringing nature of Sunbeam’s sales.”

Justice Kennedy, the lone dissent, agreed that inducement has a knowledge component, but disagreed that “willful blindness” was an appropriate substitute for actual knowledge.

With the Supreme Court offering a degree of clarity that inducement requires knowledge that the “induced acts constitute patent infringement,” (which is consistent with Federal Circuit precedent since DSU) proving inducement in the course of patent litigation will often prove to be a challenge for patent owners. Moreover, a factually well founded and competent opinion of counsel indicating that the induced acts do not constitute infringement of a valid patent should provide a strong defense to allegations of inducement.