The Federal Circuit today required reconsideration of a motion for severance in a lawsuit filed prior to the America Invents Act, issuing a mandamus in In re EMC. The opinion addressed severance under the standard used by the Eastern District of Texas and a minority of other district courts prior to “patent reform” and its “anti-joinder” provisions, holding as follows:
“We agree that joinder is not appropriate where different
products or processes are involved. Joinder of independent defendants is only
appropriate where the accused products or processes are the same in respects
relevant to the patent. But the sameness of the accused products or processes
is not sufficient. Claims against independent defendants (i.e., situations in
which the defendants are not acting in concert) cannot be joined under Rule
20’s transaction-or-occurrence test unless the facts underlying the claim of
infringement asserted against each defendant share an aggregate of operative
facts. To be part of the “same transaction” requires shared, overlapping facts
that give rise to each cause of action, and not just distinct, albeit
coincidentally identical, facts. The sameness of the accused products is not
enough to establish that claims of infringement arise from the “same
transaction.” Unless there is an actual link between the facts underlying each
claim of infringement, independently developed products using differently
sourced parts are not part of the same transaction, even if they are otherwise
coincidentally identical.”
Slip opinion page 15, In re EMC
http://www.cafc.uscourts.gov/images/stories/opinions-orders/11-m100%20order.pdf
The order from the Federal Circuit gave the case back to the district court to reconsider severance under the correct test, but the result should be a foregone conclusion. Moreover, the Federal Circuit added that even where joinder might be proper, severance is still an important consideration due to the complexity of multi-defendant patent lawsuits and trials.
Defendants should look hard at severance and/or transfer in pre-AIA cases. The real impact this ruling is likely to have is cases will be severed — but then coordinated pretrial, either in the same district, or, alternatively, where transfers are ordered with severance, re-combined in one court for pre-trial litigation by an MDL panel. An MDL court can handle a case up to and including ruling on summary judgment motions, but then must send the case back to the court where it originated for trial. Separate trials strongly favor patent defendants because each time invalidity is tried as a defense, the patent owner risks its patent — the first time the patent is found invalid, collateral estoppel will apply, and the patent should be invalidated in all cases. Since a patent is valid or not, this means each trial could be the last trial for the patent owner. Equitable defenses or non-infringement defenses or damages issues will also invoke collateral estoppel on subsidiary fact issues if the record is sufficiently clear on the fact issues decided by the jury or court (which may require special attention to the jury charge and questions so that what fact issues were decided and how they were decided is not subject to debate). Of course, the defendant will also benefit from being able to focus hard on its own story, product, and damages scenario, while forcing the patent owner to do the same: Any past advantages to painting defendants at trial with a broad brush to blur important differences between them, or from defendants having to present their case at the lowest common point, are now gone.
There is yet the possibility of a “wrinkle” in what appears to be a rather broad ruling in In re EMC because another mandamus raising the identical issue from the same district court remains pending, In re TD Ameritrade, Misc. No. 107. (It is possible the Court could expand on or narrow or otherwise inject new considerations into the analysis in In re EMC with a decision in In re TD Ameritrade).
Given the backlog of cases filed prior to the AIA, this is now a significant issue, albeit one that is likely time-limited to the next few months….
Whether for better or worse, agree or not with In re EMC, as patent enforcement costs go up, as patent enforcement risks increase, the value of patents goes down…That’s the bottom line…The consolidated EU patent is moving closer to reality. Patent protection in the EU and other jurisdictions becomes increasingly important as U.S. patent enforcement and remedies become riskier and more difficult for patent owners.
Do the math…
May 4, 2012
Software patents have taken a beating in the last two years.
Software patents survived In re Bilski and RCT v. Microsoft (which was the first post-Bilski Federal Circuit case on software patents, decided in December 2010): Software patents are not going away absent a change to the statute. But case law in the last two years has made it harder and harder to enforce software patents, get injunctions or sustain damages for them on appeal. Further, the slow pace of patent litigation, can leave many high-tech devices or inventions obsolete before there is a final result (the Hynix v. Rambus litigation has been continuing for over 12 years). Finally, patent litigation in the U.S. is more uncertain than ever given a badly fractured Federal Circuit.
RCT v. Microsoft was a case where there was an immediate connection between the software and the printer it controlled; the invention was described in detail. On the other hand, look at just some of cases that have been tamping back software patents before and since, such as Blackboard v. Desire2Lean, where claims were found indefinite; Trading Technologies v. eSpeed, where claims were found to be much narrower than asserted; and most recently, Ergo Licensing v. Carefusion 303 and Noah v. Intuit, where the Federal Circuit invalidated claims for failure to disclose sufficient algorithms to provide structure for means plus function limitations. There are of course other cases, but this is tough sledding. What does this mean to you?
It means you cannot put software patents that might be important to your business through a low cost provider pipeline and count on quantity to offset quality issues. Many companies play the “patents by the pound” ploy — get all you can, as cheaply as you can, and scare people with a big thicket of patents. I have never been a fan of this approach, but it certainly should not be applied to key technology — and definitely not to technology that is now hard to write valid claims over. If you have a software invention worth pursuing, you need to spend the time and money to have the patent done by a top notch provider with full cooperation from the inventors. The written description needs to be extremely thorough — with enough of an algorithm disclosed that the patent truly enables, teaches, and discloses an invention that can be implemented by one of skill in the art.
But writing a good patent is only one piece of the puzzle. You also need to look at software as part of your business and plan for problems just as you would with other parts of your business. Businesses and individuals spend a lot of money planning on problems: That is why we have a worldwide insurance, and reinsurance industry. That is why we have fire-hydrants in front of our homes. Stuff happens.
If you are selling products or services that include software, and are confronted with a claim of infringement of a software patent, the trend by courts to narrowly read software patents, creates not just defensive opportunities, but design around opportunities. You should have on staff (or as a resource) someone who has the capability to design around narrowly construed software algorithms with new algorithms. A software patch does not require re-tooling of a factory. If sued for software patent infringement, ask yourself, should we just redesign now to avoid the lawsuit or have a new product design (or component design) ready as soon as possible. The new case law makes this approach more feasible than it was in the past due to the constriction of the scope of software patents.
The take away from these points: 1) If you have a software invention important to your business put the patent in the hands of an experienced, successful, patent attorney who can write software patents that satisfy the written description requirement but still protect your IP space. A balance must be struck between protection of your IP and getting such narrow protection you have no real protection. You will get your money’s worth, one way or another.… 2) Hire the best software designers you can get, not only will this help your business, but when confronted with a software patent, it will enhance your capacity to design around it under current law. Heck, a lot of software features never get used, not many people are aware of them, even lawyers for the companies who sell the products often don’t know they exist: If it is not worth the fight, don’t fight. Remember this is about money, it is not an engineering contest or an ego battle — it is only about MONEY$$$.
BUT – there is a fly in the ointment – Industry standards in telecom and other network areas often adopt very specific software protocols for the “handshakes” or interoperability connections between equipment or signals. This becomes a problem because infringement may not be contestable: The main issue may be validity no matter how narrow the patent is if it covers a standard.
Yet, this is where the third piece of the puzzle comes in: Damages. The first order of business in defending a suit on a standard is to move to dismiss injunctive relief: The proponent of the standard offered the proposal to the group with the full expectation it would be implemented by the industry — where does the injunction come in under today’s law? The only issue is $$$. Recently we have seen cases between medical device makers where no injunction was awarded, and those guys always wanted and enforced injunctions. Injunctions and exclusion orders based on industry standards for interoperability should not be permitted: These are money cases from the get go. In fact, Nokia recognized this when it sued on its standards-related patents for a royalty and did not ask for an injunction.
The next thing is to put damages in perspective: Of course, the standard is essential to the operation of the device; but one buys a lamp because of the design and how it projects light, not because it comes with a standard electrical connector (plug) that fits in a standard wall socket. Interoperability interfaces are typically chosen from among several options within a shade or two of difference of each other, or developed quickly by a group, or participant, out of need for an interface (more so than the details of the interface) — which does not allow for an argument on high damages. This is especially true in light of Lucent in 2009, Resqnet.com in 2010, and Uniloc in 2011. Further, the antitrust authorities continue to keep at least one eye on abuse of the standards process, as shown in In re N-Data. The crux of the matter is if your product uses the standard, defend on validity, estoppel, damages, and wipe out the exclusion order or injunction. And yes, ask the FTC and the standards group and the EC to investigate…
The bottom line is an effective software patent enforcement strategy requires more planning and more attention from both technical and legal people in the company. The increased attention and expense needs to be integrated at the “C-Level” with the company’s business goals (in part, because of higher costs and higher risks of failure). Recall, however, patents cannot stop the better product from winning in the market: Polaroid beat Kodak in the 1980s on the instamatic camera, got an injunction, yet disappeared not long after. Kodak itself now is in bankruptcy as technology has leap-frogged to the next generation. Add to this the slow pace of patent litigation (especially in the US), its unpredictability (can you say “panel dependent”?), and the dilution of remedies – and a thoughtful business person will see the real battle ground is the marketplace not the courtroom…
April 22, 2012
On Monday April 9, the Federal Circuit decided In re MSTG, Inc., which clearly eliminated any argument that settlement or license negotiations might be privileged from discovery. The Federal Circuit rejected those cases that had held license negotiations — and other settlement negotiations — were privileged: Exempt from document production, deposition questioning, and otherwise protected from scrutiny in a lawsuit in the U.S.
Why do you care? You care because signing a non-disclosure agreement, or putting confidentiality provisions in documents, to facilitate a negotiation, will be binding on the parties, but not the court or in a lawsuit or arbitration. This means don’t put something in a settlement communication or presentation or licensing letter or presentation that would hurt you in a lawsuit. That is, if a bad document is not going to be privileged, then don’t allow a bad document to be created…The best way to avoid bad evidence is not to create it in the first place.
What can you do? The opinion has a lot of non-binding commentary, dicta, that gives negotiators, and people in litigation, some possible guidance for keeping negotiations confidential — and possibly even privileged. Some U.S. states have statutes that make mediation (a moderated negotiation with a third-party neutral, a “mediator”), privileged. The Federal Circuit did not address this issue directly, but in dicta indicated that mediation might in fact be privileged. If you have sensitive negotiations (prior to a suit in order to avoid litigation or after litigation), and you want to bar discovery into your negotiations, then do a mediation with a mediator in a state where the mediation is privileged (for example, Texas).
If you are stuck in a lawsuit now and settlement and license negotiation records, presentations or notes, are being requested by the other side, the Federal Circuit said that these types of materials might be subject to a higher burden for discovery, and more protection to maintain their confidentiality once produced. Again, this is dicta, but the language in the opinion gives parties in litigation something to work with in protecting settlement and license negotiations.
Be careful out there! Frank talk in settlement or license negotiations may be repeated back in court, notes may be shown to the jury, and presentations dissected in motions. Yes, there are potential limits of relevance under Federal Court Rules, especially Federal Rules of Evidence 403 and 408, but these limits are up to the court’s discretion, not legal privileges. Don’t create “bad evidence”…
April 10, 2012
Yesterday, the Federal Circuit Court of Appeals reaffirmed the strong U.S. policy in favor of arbitration. The Federal Circuit also reaffirmed that it does not matter what kind or type of contract, or clause, the agreement to arbitrate is found in — if the arbitration clause binds the parties, and the language is broad enough to cover the dispute (even a patent infringement dispute), then arbitration must trump….PROMEGA CORPORATION, et al. v. LIFE TECHNOLOGIES CORPORATION, 2011-1263 (Fed. Cir. March 28, 2012)(precedential opinion).
U.S. Courts have long favored arbitration. In the U.S., arbitration is generally a dispute resolution mechanism that can only be created by a contract or contract provision to resolve future disputes by arbitration instead of the courts: It is an agreement to move the dispute from a public court of record to a private self-funded and managed setting chosen by the parties.
An arbitration panel’s authority is limited to the bounds of the parties’ arbitration language: That is the parties’ agreement to arbitrate if a problem arises between them.
Should businesses with disputes (or anticipating possible future disputes) in patent, licensing or commercial matters arbitrate? Or ask for arbitration agreements? Yes.
Why? Because arbitration gives those who contract for it the ability to set the ground rules for resolution of their future disputes in their original arbitration contract or contract clause. The parties can modify the arbitration by agreement later or even in arbitration if they agree to do so. These contracts give businesses the ability to require more expertise in the decision-maker (e.g., minimum qualifications for arbitrators), to limit or constrain issues to be arbitrated (e.g., infringement and damages but not invalidity), to set time limits to start and complete the process of dispute resolution. (Some arbitration organization’s rules have built in time limits, albeit subject to change). Parties can also limit or eliminate discovery. If an arbitration clause is given serious thought at the time a product sale, indemnity agreement, patent license or settlement is entered into, then a streamlined, effective, informed decision-making process can be structured for future disputes of any kind (whether license, infringement, indemnity, FRAND, or others).
There is also a catch: The catch is many business forms have arbitration clauses embedded in them in the fine print (typically as part of a long list of terms and conditions). Under the Uniform Commercial Code in force in most U.S. state jurisdictions, and the Federal Arbitration Act, you may already have an arbitration clause in place with the party suing you if the two of you have bought and sold product from each other in the past or done other business deals in the past. It does not matter if the present fight between you is completely unrelated to the past deal, purchase or invoice, IF THE LANGUAGE OF THE ARBITRATION CLAUSE IS BROAD ENOUGH to cover your fight (for example, “any and all future disputes of any kind”). Check all contract, purchase orders, and invoices with parties that sue you if you have done business with them in the past: You may find an arbitration clause — and it may permit you to force arbitration if it is broadly worded, regardless of the scope of the prior contract itself.
Arbitration clauses trump U.S. District Court and U.S. ITC proceedings. There is little room for appeal or to challenge a final award — or even whether arbitration is required if the trial court or arbitrator say it is required. Federal law requires arbitration clauses to be enforced (as do most state laws), and do not permit for appeals from the merits of a decision. Challenges after arbitration are limited to narrow catagories of procedural problems or issues of due process or fraud. Arbitration awards are enforced by Federal District Courts.
If you want the old fashioned dispute resolution: Crowded docket; trial judge with hundreds of cases and limited brain space and time for yours; and a lay jury; then blow this off. But don’t be scared by a past bad experience in arbitration: Arbitration is a contractual dispute resolution system. In any case arbitration is only as good as the terms in the contract on which it is based. One bad arbitration experience, does not mean you will have a second bad one. Indeed, this is not much different than any other life for business experience: For example, one jury trial win does not mean you will win the second jury trial. The distinction between a good and a bad arbitration process is “in the details” of how you draft and implement the arbitration clause. (The risk of a bad experience in arbitration can be minimized by designating a reputable arbitration provider with good rules and time limits in your clause, e.g., International Chamber of Commerce Court).
Think about it — especially non-U.S. entities doing business with U.S. entities…..
March 29, 2012
On March 15, 2012, the En Banc Federal Circuit issued Marine Polymers Technologies, Inc. v. Hemcon, Inc., Slip Op. 2010-1548. The opinion decided nothing: The district court’s claim construction, infringement, and damages rulings were affirmed by an equally divided court. In other words, since no majority was formed on any question on appeal, the result below in the district court was left “as is”, affirmed. (The panel decision was vacated by the procedure of the case being taken En Banc). The issue that prompted the En Banc, whether changes in claim scope in a re-examination proceeding where the words of the claims do not change, but claim scope does due to interaction with the examiner (e.g., disclaimer of scope or re-definition of a term), gives rise to intervening rights, was addressed by dozens of pages of dicta from both sides of the Court, but nothing was decided. (Not all judges on the Court participated in the case.). An equally divided court did manage to tilt in favor of Judge Lourie’s “alternative holding” that intervening rights only arises under the statute where the claim language changes (Judge Linn joined Judge Lourie’s opinion on the point): But this is dicta since the equally divided court affirmed the district court judgment, which did not address the intervening rights issue. Yet oddly, this is labelled a “precedential” opinion on the Federal Circuit’s website. Of what???
“A House Divided Against Itself Cannot Stand”, Abraham Lincoln, June 16, 1858. (See also, Gospel of Mark 3:25, “And if a house be divided against itself, that house cannot stand.”). The Federal Circuit is clearly a house divided against itself. Prior posts have pointed out the conflicting approaches to claim construction that were illustrated six months ago in the dissents from denial of En Banc review in Retractable Technologies, Inc., and later posts on other issues (e.g., standard for preliminary injunction).
Here, right down the line, claim construction, infringement and damages, the Federal Circuit could not muster a majority to issue a ruling on any key aspect of the district court’s order, leaving its judgment “as is”. The district court’s judgment was left intact by this split, but the split shows patent law is in tatters: How can we have a “first world”, reliable, patent system, when the judges charged with bringing uniformity to that system are so deeply divided, they cannot form a majority on any issue in an En Banc opinion. Volumes of amici briefs, doubtless enormous legal expenses, and yet the Court cannot get a majority to agree on any aspect of the district court’s ruling. Indeed, as explained below, the Court cannot even reach a consensus on dicta on intervening rights.
If ever these was a single clear sign that our U.S. patent system is broken, it is this En Banc exercise that resulted in no result.
What is a U.S. patent worth? Maybe it is litigation cost/defense cost only since no one can define the claim scope (coverage), preliminary injunctions are rare, permanent injunctions are limited to narrow circumstances, and damages law remains opaque. Maybe the seat of patent jurisprudence should be Las Vegas?
Okay, enough of my pontificating: We do not have the uniformity of decision to have a reliable patent system, this drives up enforcement costs, and minimizes patent value. So now, the 50 pages of dicta in Marine Polymers Tech., Inc.
A brief analysis: The judges of the Court equally divided on the question of the proper claim construction of the key limitation “biocompatible”: From reading both opinions this was apparently driven by disagreement over the role of the specification, the doctrine of claim differentiation, and limitation of the invention to the single disclosed embodiment. The claim construction by the district court was affirmed by an equally divided En Banc court (that is, by default since neither side could muster a majority). The infringement ruling was likewise affirmed due to an equally divided En Banc court. So too was the damages ruling: From Judge Lourie’s opinion, we know that reasonable royalty, entire market value rule, and the evidence needed to sustain a damage award were issues, but again none were decided. The equally divided court left the district court’s damages decision untouched, affirmed.
The remarkable aspect of this opinion (opinions) is the discussion of intervening rights: It is all dicta. Since the district court’s opinion was affirmed by an equally divided court, intervening rights became a non-issue. The panel decision was vacated by the En Banc, the panel’s split decision was not subject to review, it was left a nullity. Moreover, since the intervening rights issue was based on events occurring after the district court’s judgment, it was not part of the district court case or judgment below.
The “non-issue ” on intervening rights was whether under Section 307 of Title 35 on re-examination (which refers to Section 252, on re-issue), intervening rights only arise when the claim language actually changes; or if intervening rights can arise if claim scope is changed during a post-grant proceeding (e.g., by disclaimer or re-defining a term in a claim), but the literal wording of the claim does not change. Judge Lourie wrote for half of the En Banc court (plus one, Judge Linn who switched sides on this issue), that only a change in language in the claim itself creates intervening rights under the statutes. Judge Dyk, writing for the other part of the En Banc court, invoked the Supreme Court’s advice that when a court is equally divided, no opinion should issue at all (since the only impact is to leave the decision below undisturbed for failure to obtain a majority to reverse it): Since the district court opinion and judgment was affirmed by an equally divided court, no opinion should have issued. Judge Dyk then went on to argue the Supreme Court’s prior writings on intervening rights were based on changes in legal scope not just words. That’s a lot of money for a lot of dicta. And is 50 pages of dicta worth Supreme Court review?
The expense, breadth, and burden of patenting and patent enforcement, are questionable in this state of affairs. Moreover, the mandate in the United States Constitution on patents is left unfulfilled in a system where there are no rules. I am not sure if I should beware of the “Ides of March” or just go drink green beer for St. Patrick’s day…
March 17, 2012
The Federal Circuit was created to bring uniformity to patent law. It has done the opposite in recent times: There is no uniformity in claim construction, as per my prior posts on Retractable Technologies, Inc. and HTC, etc. There is no uniformity in venue. If you are in Texas, using an expansive reading of Fifth Circuit Regional law, you are likely to be transferred to the infringer’s home forum. Of late, in a case from Delaware, Judge Rader did issue a precedential decision transferring a case from Delaware to Northern California, where the parties’ operations were located giving minimal weight to state of incorporation. Perhaps this is a harbinger of consistency for patent cases under 1404(a), but to date inconsistency has been the rule.
Now we see another area where confusion continues, but this is mainly at the district court level. Maybe the Federal Circuit will cure this inconsistency? Hopefully in a common-sense manner. In the Northern District of California, a lawyer can be disqualified based on little more than the client’s “say so” that the lawyer learned litigation playbook, corporate structure, or otherwise has learned confidential information (which need not be revealed and generally the lawyer’s rebuttal is not given the weight the client’s complaint is given). This might come in a later patent case, as in a recent opinion from Judge Alsup, Talon Research v. Toshiba, an opinion some months ago where I was disqualified from an antitrust case based on prior patent work by Judge Jeffrey White, Oliver v. SanDisk, et al., and other cases. Often the representation ended years ago, but this seems to have little impact in the Northern District.
Recently, Judge Davis in the Eastern District of Texas denied a motion to disqualify in Secure Axxcess v. Dell, Inc., recognizing that not all patent cases are the same, high level assertions of strategy and confidential playbook type information, in cases that ended years ago, will not themselves permit for disqualification in a later patent case. There must be a true overlap between the current and former representation, not just buzzwords. In that opinion Judge Davis found the disqualification request also undermined because similar requests had been filed in multiple patent cases by the same company against the same firm, which tended to show a broad view of disqualification across a field of cases with different subjects.
Today’s market opens up the specter of disqualification as a common litigation tactic: First, a significant number of companies use requests for proposals or bids, or otherwise shop, for the best rates and deals. A significant number of companies treat law firms as other service providers, with less concern for continuity or relationships than in the past. This is by no means true of all companies, but it has been a growing trend. The internet services that post new filings once or twice a day have facilitated this type of purchasing of legal services as it invites inquiries from firms about representation in new cases. Moreover, consolidation in certain industries also creates conflicts when a former client is absorbed by a former adversary.
In addition, lawyer mobility is probably more prevalent now than in the past. Firms grow, open new office, lawyers are laid off and re-hired by other firms, “rain-makers” are courted by other firms, firms merge, firms dissolve (e.g., Brobeck, Heller, Howrey), associates or partners or counsel whose careers hit a ceiling in one firm look for other opportunities. This mobility of attorneys is difficult to cope with in jurisdictions that do not recognize ethical walls or advance waivers of conflicts or where a court broadly construes the types of information that might lead to later disqualification.
It is time for a realistic and common sense approach to conflicts: Companies that shop their cases should not complain if in a later case a firm they previously used but declined to hire for later work shows up on the other side (so long as it is not actually the same dispute or a closely related dispute). Knowledge of a company’s corporate structure, litigation strategy, corporate workings or licensing goals is not a basis for confidential information in many instances, because these facts all change with time, the economy, the product mix: Frankly, among competitors, each others’ corporate structures are hardly secret, and the licensing strategy in most NPE cases is typically pay as little as possible. Imputed knowledge is a firm dependent if not out dated concept in an era of worldwide or national or regional firms that might have hundreds or even more than a 1000 lawyers in multiple offices. Many partners in large firms don’t know each other and don’t know what each other’s practices involve. Disqualification litigation delays lawsuits, runs up expense, and does little to protect clients or the public perception of attorneys.
There is a place for client loyalty, there is a place for disqualification, there is a place for firm loyalty, but right now those concepts are “all over the place”, without consistent or credible boundaries, which vary from jurisdiction to jurisdiction. I hope this is one area where the Federal Circuit can and does recognize modern business practices and realities, recognize facts are important and recognize distinctions should not be blended away with vague concepts of “strategy” or “corporate structure”. Clients that use one or a few firms on a fairly regular basis won’t have this issue. Law firms that respect the bounds of a prior dispute or relationship won’t have this problem. Strong waivers and ethical walls should cure this problem. But those who want to swing the DQ stick wildly and broadly, as another litigation weapon, are a problem and the problem should be stopped.
February 27, 2012
Update your links….http://www.cand.uscourts.gov/juryinstructions
February 11, 2012
Yesterday, February 10, 2012, in Bard Peripheral Vascular, Inc. v. W.L. Gore & Associates, Inc., 2010-1510 (Fed. Cir. February 10, 2012)(majority opinion authored by Judge Gajarsa and joined by Judge Linn)(dissent by Judge Newman), the Federal Circuit majority opinion affirmed a lower court’s denial of a permanent injunction against a direct competitor of the patentee found to have willfully infringed a patent regarding surgical grafts (as well as other related medical devices where the parties were not in direct competition). The dissent focused on liability and did not discuss in any detail remedies. By the way, did I say this was a medical device case between direct competitors?
The majority agreed with the district court that “it was in the public interest to allow competition in the medical device arena” Bard Peripheral Vascular, Inc. Majority Slip. op. at 37, citing, Bard Peripheral Vascular, Inc., and David Goldfarb, M.D., vs. W.L. Gore & Associates, Inc., No. CV-03-597-PHX-MHM, 2009 WL 920300, at *4–10 (D. Az. 2009). The majority gave more analysis to affirming the on-going royalty in lieu of an injunction as an equitable remedy than to denial of the permanent injunction itself. Bard Peripheral Vascular, Inc. Slip. op. at 37, citing, Bard Peripheral Vascular, Inc., and David Goldfarb, M.D., vs. W.L. Gore & Associates, Inc., No. CV-03-597-PHX-MHM (D. Az. Sept. 2010)(Slip op.). The dissent focuses on liability and does not directly address remedies.
What is remarkable is that the refusal to grant the permanent injunction is made in light of two important facts: First, the parties were direct competitors in the market for surgical grafts, and the medical need for these products trumped the patentee’s right to an injunction. As the district court found, “Surgical graft products include those products on which Gore and Bard directly compete, including the surgical graft and patch products for which the jury awarded Bard lost profit damages. The Court has sometimes referred to Gore’s surgical graft products as its ‘Counterpart Products.’” Lines 9-12, page 12, Bard Peripheral Vascular, Inc., and David Goldfarb, M.D., vs. W.L. Gore & Associates, Inc., No. CV-03-597-PHX-MHM (D. Az. Sept. 2010)(Slip op). (For an analysis of the district court’s decision, and a detailed analysis of pricing and terms of how the on-going rights would be licensed per the district courts September 2010 order, see my colleagues’ blog at http://patent-damages.com/2010/12/detailed-opinion-on-ongoing-royalties-from-arizona-court/).
Second, the Federal Circuit majority agreed the public interest favored competition for the medical products in suit. Would this be true in every medical device patent infringement case? Would this also be true in cases over drugs, agricultural improvements, and safety devices, among other things? Further, the premise of the Antitrust Laws, including the Sherman Act, the Clayton Act, and the Federal Trade Commission Act, is that competition is a good thing in every market: Patent rights are an exception to this rule.
Like many people in this business, I understood that the Supreme Court’s decision in 2006 in eBay v. MercExchange, to be the end of “mandatory” injunctions in patent cases. Although Section 283 of Title 35 had never been amended since the 1952 codification of the patent laws into the United States Code (http://uscode.house.gov/download/pls/35C29.txt), nonetheless 54 years after that law was passed, in 2006 the Supreme Court reversed decades of precedent requiring injunctions in patent cases (with very rare and extreme exceptions) based on the statute’s language referring to traditional rules of equity. This 2006 change in the law left many patent owners with only damages as a remedy.
However, I clung to the notion that on-going equitable royalties were for cases that involved non-practicing entities, or entities that did not compete with each other directly, or sometimes even competing entities that had a history of, or a commitment to, license other competitors (whether through standards-setting activity or licensing programs, etc.). A law review article studied the frequency of injunctions in the 2008-2009 timeframe, and found direct competition to be a strong predictor of an injunction post-eBay: Rachel M. Janutis, THE SUPREME COURT’S UNREMARKABLE DECISION IN EBAY INC. V. MERCEXCHANGE, L.L.C., LEWIS & CLARK LAW REVIEW Vol. 14:2, pp. 605-607 (April 2010)(http://www.lclark.edu/live/files/4810).
Yet now, with little comment from the majority or dissent, a Federal Circuit opinion affirms denial of a permanent injunction and approves an ongoing equitable royalty where a direct competitor in the medical device field was found to be a willful infringer of the patent-in-suit — due in large part to public health or interest concerns. Is this confirmation of the dwindling right to injunctions and the increasing use of the on-going equitable royalties as the “new normal”? Is this a good thing or a bad thing? Are eBay and its progeny judicial activism at work, or common sense application of the factors for injunctive relief in equity referred to in the text of Section 283 as codified in 1952?
Your comments please?
February 11, 2012
CRAIG THORNER AND VIRTUAL REALITY FEEDBACK CORPORATION v. SONY COMPUTER ENTERTAINMENT AMERICA LLC, 2011-1114
(Fed. Cir. February 1, 2012) (Rader, J., Moore, J., Aiken, Dist J.; opinion by Judge Moore).
HTC CORPORATION v. IPCOM GMBH & CO., KG, 2011-1004 (Fed. Cir. January 30, 2012)(Bryson, J., Linn, J., O’Malley, J.; opinion by Judge O’Malley).
I had thought that the issue of claim construction and the role of the specification was resolved when the full Federal Circuit declined the motion for rehearing in Retractable Technologies, Inc. v. Beckton Dickson, last October. At that time, the majority seemed wedded to the principle that the claims and the specification must be read together, and that the claims can be no broader than the teaching of the specification. There were three separate dissents, each slightly different, but each complaining that too much importance was being put on the specification in one way or another: By Judge Rader, Judge Moore and Judge O’Malley. But no!
In HTC, decided at the end of January the specification is explicitly put on equal footing with the claim language. This matches the language of the statute, Section 112:
“The specification shall contain a written description of the invention, and of the manner and process of making and using it, in such
full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains, or with which it is most nearly connected, to make
and use the same, and shall set forth the best mode contemplated by the inventor of carrying out his invention.
The specification shall conclude with one or more claims particularly pointing out and distinctly
claiming the subject matter which the applicant regards as his invention.” (Emphasis added).
In HTC the panel explicitly wrote that the specification was of equal dignity with the claims in interpreting the scope of the patent. In contrast, Thorner resurrected lots of
language from cases stressing the difficult burden of limiting claim language beyond the wording of the claims themselves through use of the specification or the file history.
Why do you care? Because you don’t know what your patent is worth and no one else does either – claim interpretation, the legal interpretation of the scope of the
patent right – is reviewed “de novo” on appeal. The trial judge can spend a tremendous amount of time and effort construing the claims, have a trial, and
it all can be reversed, on appeal. Now how it is reversed – to be more strictly connected to the disclosure or to be read according to the wording of the claims — is “panel” dependent.
Reversal of claim construction usually means the entire case goes back to the trial judge: Everything is “un-done”, infringement (or not), validity, damages, several types of
enforceability. Add on another year minimum in the trial court after remand. Add on another year for another appeal. Spin the wheel: What will happen with the law in the interim or if the next panel does not disagree with the first panel. Maybe products will be obsolete? At least your lawyers will make a lot of money. Maybe you and your neighbor could fix your fence line this way – too bad there is no Title Policy for a patent.
Perhaps I am not being romantic enough — and I should view the claims of the patent, the property right created by them, as a “Castle on a Cloud” — floating, ever floating, never fixed, always free to take you where you want to go…Well, it is almost Valentine’s Day…
February 6, 2012
Will 2012 be the tipping point for patents in the U.S.? Bluntly put, we cannot have a patent system with the same motto as Outback Steakhouse — “No rules, just right”. Patents should be like letters of credit: Clear, quickly and easily enforced. Like letters of credit, patents should be limited to what was paid in when the owner seeks to collect its due.
The key to effective, fast patent enforcement is, like a letter of credit, to have a clear definition of the right.
The Nature of the Patent Right: Patents are written for one of ordinary skill in the art to understand them through the written description and figures. Patent claims are allowed based on what an examiner reads in the context of the application as a whole, not the claims in isolation. The “trade-off” or “bargain” in the Constitution is contribution to technology, “teaching”, versus monopoly over the invention: That contribution is in the written description (including the figures) not the claim language. The language of a claim is never going to be clear enough given the inherent ambiguity in words and their juxtaposition, for a single unquestioned interpretation. Section 112 says the claims are to point out what in the specification is the inventor’s novel contribution: The statute would lead one to believe the claims are (in effect) the “yellow highlighting” on the specification to identify what is new. A majority of judges on the Federal Circuit seem to now adhere to this view as shown by the denial of rehearing en banc in Retractable Technologies, Inc. (see prior post). All judges at every level should enforce this rule as the law as a matter of precedent, enforcement of Section 112, fulfillment of the Constitutional mandate, and the necessity of commercial reality.
Enforcement of the Patent Right: If claims are confined to the specification, we eliminate or narrow the biggest fight in most patent cases: The scope of the claims. Truth be told, direct infringement in nearly all mechanical and electrical cases should be decided on summary judgment with claim construction. Mass produced products, components for other products, products that are part of networks, software designed to run on millions of devices with the same result, all work the same every time. There is no doubt or mystery to their function, properties or design. The only doubt is if the accused part or process is within the claims. This is a question of claim construction. When claims are not construed strictly, however, judges end up with fact issues where none should exist. (Could you sell a million phones if you were not positive that they all worked the same?) If claims were construed strictly, the application of the claims to parts and processes would be clearer; fact issues would not typically exist on liability for direct infringement in the overwhelming majority of cases in mechanical and electrical fields. Intent, knowledge, credibility, joint action, divided infringement, inducement or willfulness might remain jury issues, but the streamlining of the process would be profound.
If a patent right is clearly defined, then the question for preliminary injunction should be much simpler under Fed. R. Civ. P. 65: Is there a likelihood of success that the patent as defined by its specification is infringed? Is there an adequate remedy by damages — that is does the patentee have a practice or a business model of licensing that patent? Or is the patentee under an obligation to license from a standards group or other patent pool? Is there a public policy reason not to grant the injunction, such as a risk to cancer patients denied treatment? Or the patentee does not practice the patent and products manufactured by the defendant would be unnecessarily removed from the market? Is there on balance, de minimis harm to the patent owner’s business, compared to the “start up” put out of business, before a trial?
In large part, my opinion is the reluctance to grant preliminary injunctions flows from the uncertainty as to the scope of the patent right, which raises questions of infringement, validity, and relief. For this reason the dissents from denial of rehearing en banc in Kimberly Clark (see prior post) complained that the actual test now is if there is a viable defense, not a likelihood of success on the merits. In an extreme application of this test, a district judge recently found in his view the patent was infringed, the patent owner was entitled to relief, but that since a jury might disagree with his view of the evidence, he could not say there was a likelihood of success.
The other aspects of enforcement that create uncertainty and inflate expense, include venue, damages and juries as arbiters of patent cases. Venue should be resolved by the Federal Circuit one of two ways: Either under the patent venue statute, section 1400(b) of Title 28, as a matter of patent law — or recognize that since Congress could not agree on venue reform after several attempts to do so, the Federal Circuit cannot unilaterally change the law (and “back off” until Congress Acts). Instead, Mandamus, that extraordinary writ, is now an ordinary part of patent litigation: Yet even Mandamus results are not entirely consistent. Often legalistic differences with nothing to do with the practical aspects of a trial are applied differently: E.g. places of incorporation, trump in some cases and are of no moment in others. Fighting over venue is a waste of time and money — and takes away judicial resources better spent on the merits. Venue battles need to be stopped by having a rule, one way or the other, “black or white”, pick…
Damages are now so opaque that an experienced district judge appointed an FRE 706 expert on damages in Oracle v. Google. While the recent law harkens back to early twentieth century opinions on reasonable royalties (see, e.g., apportionment discussion in Lucent v. Gateway), the courts ignore the reality that prior to the merger of law and equity in 1938, and the post-WWII combination of R.S.4919 and R.S. 4921 into Section 284, reasonable royalty was solely an equitable remedy. (see two posts from September 2010 and one post from February 2011). Now, although we are pulled back to the reasoning and requirements of 100 year-old equity cases, lay juries are instead given these questions. This type of ”selective memory” would match that of any teenager in an argument with his or her parents…
The Seventh Amendment preserved the right to jury in civil cases as it existed at the time the amendment passed. Reasonable royalties are not a type of remedy a common law court would have permitted in 1800 (the common law’s harsh rule required damages be calculated with certainty or none were awarded, despite proven wrongdoing and injury). Reasonable royalties were not given in patent cases at law prior to the merger of law and equity in 1938. Prior to the mid-1990s nearly all patent trials were bench trials. Frankly, the real focus in every patent case before 2006 (pre-eBay) was the injunction (who cared about the damages when the injunction let you write your own check?). The status quo is not fair to jurors who must be frustrated when asked to decide something that is incredibly difficult for even lawyers and judges and economists — nor is it fair to litigants left to appeal the “black box” of a jury verdict as opposed to specific, written, findings and conclusions by a judicial officer (who at least knows the law and has a strong post-graduate education, even if not technical).
Bottom line: The law limiting claims to the written description exists; it needs to be uniformly enforced. Clarity in patent scope cures a lot of ills and saves a lot of money, even if it is not perfect or a “panacea”. Most likely, clarity would make judges more comfortable with summary judgments on direct infringement, as well as preliminary injunctions. Enforcing this law uniformly would cut litigation costs and delay, and enhance patent value. Patents may be narrower, but they would be worth more, and offer better, faster, cheaper remedies.
Problems remain in opaque damages law, quirky venue practice, and reasonable royalty issues left to lay juries — that historically were, and should today, be decided by judicial officers based on findings and conclusions reviewable on appeal.
Referring to software patents, Marshall Phelps, former head of intellectual property at International Business Machines Corp. and Microsoft Corp., was quoted in Bloomberg News recently saying, “‘Nobody has ever kept competitors out of any market with patents,’ in part because software can usually be slightly changed to find a non-infringing alternative, he said.” Patents that can be enforced quickly, cheaply, predictably, might put Mr. Phelps’ observation to the test. But, in the status quo, there is much truth to this statement.
Outback Steakhouse, maybe great, but what makes for a good restaurant experience is not the way to create a strong, reliable and predictable patent system.
December 31, 2011
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