Alice Corp. v. CLS Bank Intl: the Supreme Court supports a “New Hermeneutic of Suspicion?”

Alice Corp. v. CLS Bank Intl (573 U.S. ___ (2014)) held that Petitioner’s method, computer readable media, and system claims are drawn to a patent-ineligible abstract idea. Here, I focus not on the definition of an “abstract idea” (the Court avoided such a definition) but rather on how the Court’s holding appears to affirm the “new hermeneutic of suspicion” that I discussed in my blog post analyzing the per curia Federal Circuit opinion (CLS Bank Intl v. Alice Corp., 717 F.3d 1269, 106 U.S.P.Q.2d 1696 (C.A. Fed. 2013)). In the case at hand, the Court did not distinguish among the ineligibility under 35 U.S.C. 101 of the method, media, and system claims, but rather rejected them all. The Court also did not take into account the dissenting in part opinions of Federal Circuit Judges Rader, Linn, Moore, and O’Malley that the system claims are eligible for patent protection under 35 U.S.C. 101 even though the method claims are not. Rather, in passing the Court stated that “This Court has long ‘warned…against’ interpreting §101 ‘in ways that make patent eligibility depend simply on the draftsman’s art.’” The Court appears to accept Judge Lourie’s opinion in the per curia case that “the asserted method and system claims require performance of the same basic process” and therefore simply adding a computer to the system claims does not save them from ineligibility. 106 U.S.P.Q.2d 1696. The Court’s opinion appears to support the Federal Circuit’s analysis whereby system claims, even though drawn to a computer with hardware,  are no more eligible than the method claims because the reviewing court suspects the patent draftsman of  “artfully” attempting to avoid the ineligibility of the method claims. As Federal Circuit Judges Moore, Linn, and O”Malley said in their dissenting opinion, such a hermeneutic “may open to ineligibility challenges “hundreds of thousands of patents, including all business method, financial system, and software patents as well as many computer implemented and telecommunications systems.” 106 U.S.P.Q.2d ___ (Moore, J; Linn, J; and O’Malley, J. dissenting-in-part). The Supreme Court has not attempted to “delimit the precise contours of the ‘abstract ideas’ category.” In other words, the Court is essentially saying “we will know it when we see it.”

Here is a link to my previous blog post.

 

 

Third Annual University of Minnesota Law School Patent Symposium

On Wednesday, May 21, Briggs and Morgan’s Intellectual Property group and the University of Minnesota Law School co-presented the Third Annual University of Minnesota Law School Patent Symposium, Non-Practicing Entities: Abusive “Patent Trolls” or Free Enterprise Drivers of Innovation? The symposium covered the following topics:

  • Do Patent Assertion Entities Help or Hinder Innovation?
  • Issues and Trends in State Actions Against NPEs
  • Litigation When Sued by a Patent Assertion Entity
  • Litigating Against NPEs – In‐House Strategies
  • Pending Legislation Aimed at NPEs

Briggs and Morgan’s top-rated intellectual property attorneys can help you maximize the value of your IP and avoid risk. Briggs’ IP lawyers have been recognized by their peers as “Top 40 Intellectual Property” lawyers, Intellectual Property “Super Lawyers,” and Minnesota Attorneys of the Year. As a result, they possess the knowledge and breadth of experience to understand your business and help you achieve your objectives.

Please click here if you were not able to make the symposium but would like to view a copy of the materials.

Supreme Court Eases The “Exceptional Case” Standards for Patent Cases

In October, we reported on the Supreme Court’s decision to take on two patent cases addressing the “exceptional case” standards of Section 285. This week, the Court issued its unanimous decisions in Octane Fitness v. Icon Health & Fitness and Highmark v. Allcare Health, abolishing the Federal Circuit’s rigid standards for these types of cases and creating new standards that will make it easier for district courts to award fees to prevailing parties in patent infringement actions.

Prior to this week’s decisions, in order to establish that a case was exceptional, a prevailing party was required to show by clear and convincing evidence that the litigation was both brought in bad faith and objectively baseless. In Octane Fitness, however, the Court found that Section 285 contains no such requirements. Rather, according to the Court, Section 285 “imposes one and only one constraint on district courts’ discretion to award attorney’s fees in patent litigation: The power is reserved for ‘exceptional’ cases.” Similarly, the Court found that “nothing in [Section 285] justifies such a high standard of proof” as clear and convincing evidence. Instead, “Section 285 demands a simple discretionary inquiry; it imposes no specific evidentiary burden, much less a high one.”

Construing the term “exceptional” in accordance with its ordinary meaning, the Court held that an “exceptional” case “is simply one that stands out from others with respect to the substantive strength of a party’s litigating position. . . or the unreasonable manner in which the case was litigated.” Accordingly, under the new framework set forth in Octane Fitness, district courts may determine whether a case is “exceptional” in a “case-by-case exercise of their discretion, considering the totality of the circumstances.”

Piggy backing on the holding of Octane Fitness, the Icon Health decision held that all aspects of an “exceptional case” determination should be reviewed under an abuse of discretion standard rather than the Federal Circuit’s previously exercised de novo review of the “objectively baseless” determination.

While both of these cases had implications relating to the rise of non-practicing entity (“NPE”) litigation, the Court did not specifically address NPE issues. However, with the more flexible standards set forth in these decisions, there is no doubt these holdings will impact not only NPE litigation, but patent litigation in general. “Exceptional case” motions are likely to become more common, and, as one amicus suggested, the new standards will “incentivize[] patent holders and accused infringers to litigate only legitimate, good-faith disputes over patent infringement and validity.”

Federal Circuit Partially Vacates Judge Koh’s Order Denying Apple’s Motion for a Permanent Injunction Against Samsung

[Cross-posted at Comparative Patent Remedies]

In an appeal arising from Judge Koh’s December 2012 order denying Apple’s request for a permanent injunction against Samsung, following the high-profile August 2012 jury verdict in Apple’s favor, Judge Prost writing for the panel (1) affirms Judge Koh’s ruling denying a permanent injunction with respect to Samsung’s infringement of three design patents and its dilution of Apple’s trade dress; and (2) vacates the portion of the ruling denying a permanent injunction with respect to the three utility patents.  The opinion can be downloaded from here.  My previous write-up on the case following oral argument in August 2013 is here.

The principal issues were (1) whether Judge Koh was correct to require proof of a causal nexus between Samsung’s infringement and Apple’s (established) loss of market share and downstream sales to Samsung, and (2) if so whether she correctly applied the “causal nexus” concept.  (The “causal nexus” requirement itself comes from two previous Federal Circuit decisions on preliminary injunctions, referred to in the opinion as Apple I and Apple II).  On the first issue, the Federal Circuit says yes:  “the district court was correct to require a showing of some causal nexus between Samsung’s infringement and the alleged harm to Apple as part of the showing of irreparable harm.”  The court rejected Apple’s argument that “causal nexus” is an “unprecedented fifth requirement,” and reaffirms that “causal nexus . . . is part of the irreparable harm factor.”  On the second issue, however, the court “agree[s] with Apple that certain of the standards arguably articulated by the district court go too far.”  Specifically:

First, the district court appears to have required Apple to show that one of the patented features is the sole reason consumers purchased Samsung’s products. . . .

It is true that Apple must “show that the infringing feature drives consumer demand for the accused product.” Apple II, 695 F.3d at 1375. It is also true that this inquiry should focus on the importance of the claimed invention in the context of the accused product, and not just the importance, in general, of features of the same type as the claimed invention. . . .  However, these principles do not mean Apple must show that a patented feature is the one and only reason for consumer demand. Consumer preferences are too complex—and the principles of equity are too flexible—for that to be the correct standard. Indeed, such a rigid standard could, in practice, amount to a categorical rule barring injunctive relief in most cases involving multi-function products, in contravention of eBay.

Thus, rather than show that a patented feature is the exclusive reason for consumer demand, Apple must show some connection between the patented feature and demand for Samsung’s products. There might be a variety of ways to make this required showing, for example, with evidence that a patented feature is one of several features that cause consumers to make their purchasing decisions.  It might also be shown with evidence that the inclusion of a patented feature makes a product significantly more desirable. Conversely, it might be shown with evidence that the absence of a patented feature would make a product significantly less desirable. . . .

The second principle on which we disagree with the district court is its wholesale rejection of Apple’s attempt to aggregate patents for purposes of analyzing irreparable harm.

While it is true that this court analyzed causal nexus on a patent-by-patent basis in Apple I, we did not mean to foreclose viewing patents in the aggregate. Rather, we believe there may be circumstances where it is logical and equitable to view patents in the aggregate. For example, it may make sense to view patents in the aggregate where they all relate to the same technology or where they combine to make a product significantly more valuable.  To hold otherwise could lead to perverse situations such as a patentee being unable to obtain an injunction against the infringement of multiple patents covering different—but when combined, all—aspects of the same technology, even though the technology as a whole drives demand for the infringing product.

Applying these rules, the court concluded that Judge Koh did not abuse her discretion in finding no causal nexus between the design patent infringement and Apple’s harm; but that she must reconsider the matter with respect to three utility patents.  (The court agreed with Judge Koh that there was no evidence Samsung would resume the trade dress dilution, and affirmed the denial of an injunction with respect to those rights on that ground.) With regard to the utility patents, the court wasn’t swayed by Apple’s survey evidence that “ease of use, in general, is important to the iPhone” or that Samsung copied.  This evidence, though relevant, wasn’t enough by itself to show causal nexus.  But the court did find evidence in the form of a conjoint survey potentially more probative: Read the rest of this entry

Intellectual Ventures’ Damages Claims, Professor Cotter’s Reaction

Reuters quotes our very own Professor Cotter regarding the novel damages argument being made by Symantec and Trend Micro against Intellectual Ventures (IV). According to the news service, IV seeks more than $300 million from the two companies for infringing a patent purchased for $750,000. Symantec and Trend Micro have told a Delaware Court that such a large licensing fees cannot be reasonable for a patent acquired for so little.

Thomas Cotter, a patent damages expert at the University of Minnesota Law School who is not involved in the case, said he is unaware of any court ruling along the lines being urged by Symantec and Trend Micro. For Intellectual Ventures, which says it has earned about $3 billion to date from licensing its thousands of patents, the stakes could hardly be higher.

“If the royalty is capped at the purchase price, there’s obviously no point in being a patent assertion entity,” Cotter said. Read the rest of this entry

“The Innovation Act of 2013” – Representative Goodlatte Introduces New Bill Seeking to Curb Perceived Patent Litigation Abuses

On October 23, 2013, House Judiciary Committee Chairman Robert Goodlatte introduced “The Innovation Act of 2013.” (H.R. 3309) The bill is in response to perceived abuse of the patent litigation system by Non-Practicing Entities (referred to derogatorily as “Patent Trolls.”) The bill is being distinguished from other recent reform proposals on the basis that it “target[s] abusive behavior rather than specific entities.”  The bill’s authors have been careful to note that it does not attempt to eliminate valid patent litigation.  Rather, the stated goal is “preventing individuals from taking advantage of gaps in the system to engage in ‘litigation extortion.’”

Some of the key highlights of the bill are:

1.         Heightened pleading requirements.  Without limitation, the bill would require Plaintiffs to provide: i) an identification of each patent and each claim allegedly infringed; ii) an explanation as to where each element of each claim is found in each “accused instrumentality”; iii) whether each element is infringed literally or under the doctrine of equivalents; iv)  how the terms of each claim correspond to the functionality of the accused instrument; v) for any indirect infringement, a description of the direct infringement and any acts allegedly inducing or contributing thereto; vi) allege indirect infringement; vii) a description of the “right” of the party to assert infringement, viii) a description of the principal business of the party alleging infringement; and ix) a list of all infringement complaints involving the same patent(s).

2.         Joinder.  The bill would allow joinder of an “interested party” where a defendant shows the plaintiff has no substantial interest in the patent other than asserting it in litigation.  “Interested Party” is defined to include: i) assignees of the patent; ii) persons with a right to enforce or sublicense the patent; iii) persons with a direct financial interest in the patent, including attorneys and law firms representing the plaintiff;

3.         Attorneys Fees to the Prevailing Party. The bill provides that the court “shall” award reasonable fees and other expenses to the prevailing party unless the position of the non-prevailing party was “substantially justified” or “special circumstances make an award unjust.”  Of note – the bill expressly allows prevailing defendants to collect fee awards from non-plaintiffs having a substantial interest in the patent-at-issue.

4.         Limitations on Discovery.  The bill would allow only limited discovery until after claim construction.

The bill also contains substantive changes to the AIA’s new IPR and PGR proceedings.  First, the bill seeks to limit PGR estoppel. Under the AIA, PGR creates estoppel for “any ground that the petitioner raised or reasonably could have raised. . .” 35 U.S.C. § 325(e) (italics added.)  The bill would narrow such estoppel solely to grounds actually raised.  The authors of the bill presumably want to promote use of PGR by limiting estoppel concerns.

Second, the bill seeks to change the PTO’s longstanding practice of applying the broadest possible claim construction in review proceedings.  The proposed bill would require the PTO to “constru[e] each claim of the patent in accordance with the ordinary and customary meaning of such claim as understood by one of ordinary skill in the art and the prosecution history pertaining to the patent.” To the extent the authors of the bill are seeking to curtail NPE litigation, one wonders why they would propose a narrower claim construction, thereby making it easier for the NPEs’ patents – many of which are perceived to be obvious and overbroad — to survive review.

To see why former USPTO Director Kappos supported and favored continuing application of the broadest possible claim interpretation see http://www.uspto.gov/blog/director/entry/ensuring_quality_inter_partes_and.

http://www.uspto.gov/blog/director/entry/ensuring_quality_inter_partes_and

ONE YEAR LATER – IPR WIDELY ACCEPTED AND GAINING MOMENTUM

The new AIA Inter Partes Review proceedings (“IPR”) became effective September 16, 2012.  USPTO statistics reveal IPR has been widely accepted with IPR filings steadily increasing.  In October 2012, the first full month the new IPR procedures were in effect, approximately 25 IPRs were filed. Less than a year later in July 2013, approximately 75 IPRs were filed – a 200% increase.  A total of 459 IPRs were filed through August 30, 2013. The rate of IPR filings now greatly exceeds the average filing rates for the old Inter Partes Reexamination proceedings.

Interpartes review data

inter partes reexam data

Inter Partes Reexamination

A variety of factors are responsible for the widespread acceptance and utilization of IPR, including: 1) the expedited nature of IPR (decision required within 12 months of filing); 2) the availability of limited “litigation” style discovery; 3) the express ability of the parties to enter into a settlement prior to a final decision (“put the genie back in the bottle”); and 4) filing deadlines (a defendant in a patent litigation may only request IPR for up to one year after being served with the complaint).

In addition to the new benefits afforded by IPR, the traditional benefits of administrative review verses a district court challenge remain, including: 1) significantly lower average attorneys fees; 2) lower “preponderance of the evidence” standard (compared to heightened “clear and convincing evidence” applied in district court); 3) no presumption of validity; and 4) application of broadest claim interpretation (compared to district court canon that claims be construed to preserve their validity).

IPR has continued to gain momentum despite the AIA’s adoption of a heightened standard for commencement/initiation of the review proceeding.  The old “substantial new question of patentability” standard resulted in roughly 95% of Inter Partes Reexamination proceedings being allowed to proceed.  The “SNQ” standard has been replaced by what was intended to be a heightened standard.  Specifically, an IPR requestor must now establish a “reasonable likelihood that the requestor will prevail with respect to at least one of the claims challenged.”  The initial data indicates a slight decrease in the initiation rate under the new standard.  Through August 2013, 87% of IPR petitions filed have been allowed to proceed.

Based on one year of data, it appears the USPTO will increasingly become the forum of choice for patent validity challenges.

Supreme Court to Review “Exceptional Case” Standard for Patent Cases

This week the Supreme Court granted cert petitions in two patent cases: Octane Fitness v. Icon Health & Fitness and Highmark v. Allcare Health Management.  Both cases address 35 U.S.C. § 285, which allows a court to award reasonable attorneys’ fees to the prevailing party in “exceptional cases.”  Under Section 285, a case is “exceptional” if the litigation (1) was brought in subjective bad faith; and (2) is objectively baseless.  Octane Fitness addresses the propriety of this two-prong test.  Highmark addresses the appropriate standard for reviewing a district court’s exceptional case determination under the two-prong test.

In Octane Fitness, the district court granted accused infringer Octane’s motion for summary judgment of non-infringement, but denied Octane’s motion for attorneys’ fees under Section 285.  The district court found that the litigation was neither objectively baseless nor brought in subjective bad faith.  On appeal, Octane sought to lower the standard for exceptionality to “objectively reasonable” in order to “re-balance what it alleges as the power of large companies over smaller companies in infringement litigation.”  The Federal Circuit affirmed, refusing to revisit “the settled standard for exceptionality.”

In its Supreme Court petition, Octane argued that Section 285, as interpreted by the courts over time, “has strayed from the original intent of preventing ‘gross injustice’ to an accused infringer (the result of a defendant having to spend $1 million plus to defend itself against overreaching and unfounded contentions), to a standard that is near-impossible for an accused infringer to meet no matter the unreasonableness of the litigation, and that consequently serves as no deterrent to the assertion of spurious claims.”  Octane noted that a patentee, on the other hand, can establish an exceptional case solely on a finding of willful infringement.  Willful infringement requires that a patentee show by clear and convincing evidence that (1) the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent; and (2) the accused infringer knew or should have known about this objectively-defined risk of infringement.  According to Octane, a patentee’s ability to rely on a finding of willful infringement results in a lower threshold for prevailing patentees than for prevailing accused infringers seeking to recover their fees under Section 285.

In Highmark, after several years and millions of dollars in legal costs, accused infringer Highmark prevailed on summary judgment.  Conducting an extensive analysis, the district court determined the case was exceptional under 35 U.S.C. § 285 on several grounds, including: (1) no pre-filing investigation was performed by an attorney – rather, attorneys relied on an analysis performed by a non-attorney/non-engineer, and claim charts and summary judgment rulings from another case in which Allcare had asserted the same patent (both of which focused on claim construction and not infringement); (2) Allcare asserted meritless defenses, knowing such defenses were not available; (3) Allcare argued in a jurisdictional motion to dismiss that it had no control over a pre-litigation survey of potential infringers, although subsequent Allcare filings contradicted that assertion; (4) Allcare engaged in needless alterations of its claim construction assertions; and (5) Allcare continued to pursue infringement claims as “leverage,” even after its own expert conceded there was no infringement.

Affording no deference to the district court’s findings that the suit was objectively baseless, the Federal Circuit reversed in part, finding that at least some of the aspects of the case were non-frivolous.  In a sharply contested six to five vote, the Federal Circuit denied rehearing en banc.  One of the dissents observed that the Federal Circuit’s de novo review “deviates from precedent . . . and establishes a review standard for exceptional case findings in patent cases that is squarely at odds with the highly deferential review adopted by every regional circuit and the Supreme Court in other areas of law.”

The Court’s grant of these two cases appears to confirm the need to address the rise of non-practicing entity (“NPE”) litigation.  The patentee in Allcare was an NPE, and although the patentee in Octane Fitness is a large manufacturer/seller of exercise equipment, it never sold a commercial product covered by the patent at issue in that case.  According to Blue Cross Blue Shield Association, who submitted an amicus brief in the Highmark case, “[t]he one weapon that parties sued by NPEs have to level the playing field and deter abusive litigation tactics is the threat of shifting attorney’s fees ‘in exceptional cases.’”  Blue Cross further commented that Section 285 “plays a critical role in regulating the quality of patent infringement lawsuits,” because the prospect of the prevailing party recovering its attorneys’ fees “incentivizes patent holders and accused infringers to litigate only legitimate, good-faith disputes over patent infringement and validity.”

 

Details of the “patent troll” Minnesota consent decree

The first-in-the-nation settlement between the Minnesota Attorney General and patent litigant MPHJ Technology Investments has been widely reported, including by  the Washington Post, Bloomberg, Law360, and Ars Technica. But none of these outlets have posted a copy of the settlement agreement and the resulting court order.

The agreement and order can be found here. Captioned as an “Assurance of Discontinuance” (see Minn. Stat. § 8.31), the agreement and order together function as a consent decree.

Although several provisions of the agreement are interesting, perhaps most interesting is a stayed, conditional civil penalty:

MPHJ, including the MPHJ Subsidiaries and affiliates, represents and warrants that it has not received money from any Minnesota resident or entity for a patent license or an alleged infringement of a patent or patent rights. If, contrary to this representation and warranty, the State discovers Minnesota residents or Minnesota entities did pay MPHJ money for a patent license or for an alleged infringement of a patent or patent rights, then as penalty for violation of this Paragraph 4, MPHJ shall pay the State a civil penalty of $50,000 and refund all such money paid by Minnesota residents and entities.

The Assurance thus explains that MPHJ did not make any money from Minnesota residents in response to its demand letters.

Related cases in Vermont and Nebraska continue. Law360 reports that MPHJ removed the Vermont Attorney General’s litigation to federal court, and that the Attorney General is seeking to remand the case to state court. Meanwhile, a federal judge in Nebraska has granted a  preliminary injunction for the law firm that represents MPHJ, allowing it to continue litigating patent cases there The Nebraska Attorney General had sent the firm a cease-and-desist letter, demanding that the firm stop its patent-enforcement efforts. Patently O has more details here.

Recent Fair Use Decision on Open-Records Laws and Copyright Protection

The Minnesota Court of Appeals recently added a decision to the small but growing body of law surrounding state open-records laws and copyright protection.

The case is National Council on Teacher Quality v. Minnesota State Colleges & Universities. Here’s the background. National Council on Teacher Quality sent a request under the Minnesota Government Data Practices Act—Minnesota’s open-records act—for copies of course syllabi maintained by the Minnesota State Colleges and Universities, known as MnSCU (and pronounced min-skew). MnSCU responded, saying (1) its faculty members’ intellectual-property rights might be violated by the National Counsel’s later use of those materials, and (2) MnSCU might be subject to liability under the copyright act. MnSCU

National Counsel sued and won. The district court concluded that National Counsel’s proposed use was fair use under the copyright act. Because the proposed use was fair use, the copyright act was no defense to MnSCU’s failure to disclose the syllabi.

MnSCU appealed and lost. MnSCU based its appellate argument primarily on its concern that copying the syllabi might expose MnSCU to copyright liability when National Counsel engages in conduct that does not constitute fair use. The court did not consider whether MnSCU’s copying of the documents itself violates the Copyright Act. The court of appeals held that once fair use is established, Minnesota’s open-records law does not allow an agency to withhold information based on a theoretical, future violation of the Copyright Act.

One amicus brief raised an interesting argument, claiming that even allowing National Counsel to view the syllabi—without copying—would  violate the Copyright Act. The amicus reasoned that the viewing would constitute a “public display” of the authors works and would therefore   violate of the owners’ rights under the Copyright Act. The court noted neither the statute nor cases supported argument that allowing a single party to view a copyrighted work might be a “public display” that would require the copyright holder’s permission.

The court’s case holding is as follows:

A state agency cannot rely on the Federal Copyright Act to refuse to disclose data that is the subject of a request for disclosure under the Minnesota Government Data Practices Act after the district court determines, without dispute, that the requestor intends only “fair use” of the data as defined by the copyright act.

The time to seek review from the Minnesota Supreme Court has not yet run, so this case may not yet be over. Stay tuned.

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