IP Update, Volume 8, No. 3, March 2005
March 2005
Patents / § 271(f) Infringement
That Which We Call a Component by Any Other Name Would Still Be a Component
By Stephen K. Shahida
In a decision with potentially profound implications for the multi-billion dollar software and “fabless” semiconductor industries, the U.S. Court of Appeals for the Federal Circuit has construed the term “component” in 35 U.S.C. § 271(f) to include software. Eolas Technologies, Inc. v. Microsoft Corp. , Case No. 04-1234, 2005 U.S. App. LEXIS 3476 (Fed. Cir., March 2, 2005) (Rader, J).
Although the issue before the Court was one of first impression, it was a simple one: can a software company that designs, develops, tests, markets and supports in the United States a software program that when in operation infringes a patent escape liability under United States patent laws by transferring the step of installing the code onto computer hardware overseas? The Court answered with a resounding no.
The facts in Eolas were not in dispute: Microsoft makes a limited number of “golden master” disks in the United States on which Windows operating system software is stored. It then ships the golden master disks abroad. Computer manufacturers, in turn, replicate the software information stored on the disks onto computer hardware ultimately sold to consumers. The golden master disk itself is never incorporated into a computer system.
Given the fact that the golden master disk, as opposed to the software information on the disk, is not incorporated into computers, Microsoft argued that it provided no “physical” component of a patented product. But in a unanimous decision, the Federal Circuit rejected Microsoft’s interpretation of § 271(f) and reaffirmed the district court’s holding that the term “component” in § 271(f) specifically covers the software code on Microsoft’s golden master disk.
In rendering its decision, the Federal Circuit considered the language and legislative history of the statute and the history concerning the patentability of software inventions. In examining the statutory language of § 271(f), the Court determined that “the software code on the golden master disk is not only a component, it is probably the key part of this patented invention.”
The Federal Circuit also held that sound patent policy advises against applying a limited meaning to the definition of “component of a patented invention.” Instead, the Court held that “the statute did not limit section 271(f) to ‘machine’ components or ‘structural or physical’ components. Rather every component of every form of invention deserves the protection of § 271(f).”
In addition, the Federal Circuit considered and rejected Microsoft’s reliance on the Federal Circuit’s decision in Pellegrini v. Analog Devices, Inc. , stating: “Microsoft simply misreads the language of Pellegrini .” First, the Federal Circuit clarified that Pellegrini does not address the “component” language in § 271(f), nor does Pellegrini impose a tangibility requirement. Second, the Court held that Pellegrini “requires only that components are physically supplied from the United States.” Because Microsoft ships it golden master disk containing the source code from the United States to manufacturers abroad for duplication onto computers, the Court ruled that the information on disk falls squarely within the “component” language of the statute.
Practice note: U.S. companies that complete their manufacturing process by installing a software “component” overseas must now consider the ramifications of the Eolas case.
Argument Distinguished Prior Art in Prosecution Broadly Construed as Disclaimer Against All Disclosed Prior Art Embodiments
By Christopher D. Bright
Again answering the often-asked question of when a structure is “unitary,” the U.S. Court of Appeals for the Federal Circuit has held that a disclaimer during prosecution extended broadly to the distinguished prior art, in fact, across all of the embodiments disclosed in the prior art. Sentry Protection Prods., Inc. v. Eagle Mfg. Co. , Case No. 04-1392 (Fed. Cir., March 11, 2005) (Prost, J.).
Sentry sued Eagle for infringement of its patents on barriers that protect structural columns and supports from being damaged when they are hit by cars, while reducing damage to the impacting car and its driver.
One of the elements of the claimed invention is essentially a bumper, which the patent refers to as “impact protection components.” The key dispute was whether the prior art had devices made up of a plurality of such bumpers where each bumper was a “single unitary part.” Sentry added the “single unitary part” limitation to distinguish the prior art “multi-component … assembly” ( i.e., a bumper made up of an inner tube and a protective shell). The Federal Circuit held Sentry thereby expressly disclaimed multiple-piece bumpers. The cited prior art reference disclosed bumpers comprising multiple pieces that could be separated and bumpers in which the multiple pieces were joined in such a way that they could not be separated. Accordingly, the Federal Circuit held bumpers with multiple pieces to be disclaimed, whether or not the pieces were separable or inseparable. The Federal Circuit thus affirmed the district court’s claim construction that “the impact protection component is a single part, which is complete by itself without additional pieces.”
Applying this construction, the Federal Circuit went on to hold both of the asserted claims anticipated by a different reference disclosing a frame and mounting brackets holding two hollow cushion bumpers in place. The Court found each of the cushions met the limitation “single unitary part.”
Practice Note: Perhaps foreshadowing the outcome of the much-anticipated en banc Phillips v. AWH Corp . case, by broadly applying the disclaimer doctrine across all embodiments disclosed in the distinguished prior art, this decision highlights the significance that this Federal Circuit panel would give to the intrinsic claim construction evidence.
Patents / Appellate Jurisdiction
Federal Circuit Demands “Diligent Compliance” with Rule of Finality
By Michael S. Wilcox
The U.S. Court of Appeals for the Federal Circuit dismissed for lack of jurisdiction the appeal of a summary judgment of no infringement where a counterclaim for declaratory judgment of invalidity was still pending. Pause Technology, LLC v. TiVo, Inc. , Case No. 04-1263 (Fed. Cir., March 14, 2005) (Linn, J.).
Pause sued TiVo for infringement of its U.S. Reissue Patent No. 36,801. In addition to affirmative defenses, TiVo counterclaimed for a declaratory judgment of invalidity and non-infringement. Following claim construction, on TiVo’s motion for summary judgment, the district court found no infringement and entered judgment in favor of TiVo. Neither the district court’s order nor the docket sheet indicated the disposition of the invalidity counterclaim.
Pause appealed, stating in its opening brief that the judgment had been final. TiVo’s initial brief stated that the district court had not ruled on TiVo’s motion for summary judgment on invalidity, but that TiVo did not question appellate jurisdiction. The Federal Circuit requested additional briefing on the jurisdictional issue, citing the apparently unresolved counterclaim for invalidity. Pause argued that the district court had implicitly dismissed the invalidity counterclaim. TiVo disagreed with implicit dismissal and acknowledged that the invalidity counterclaim remained pending.
The Federal Circuit held that because the invalidity counterclaim remained unadjudicated before the district court, there was no final decision within the meaning of 28 U.S.C. § 1295(a)(1) and, therefore, no appellate jurisdiction. The Court rejected Pause’s theory of implicit dismissal, stating that even if the district court had implicitly disposed of TiVo’s invalidity defense, the invalidity counterclaim was a separate claim that remained unresolved. The Federal Circuit stated that parties too frequently do not review the actions of district courts for finality before lodging appeals, resulting in needless delay and inefficiency. It further warned, “our court will insist upon diligent compliance by counsel with the rule of finality.”
As it had no jurisdiction, the Federal Circuit dismissed the appeal. However, it granted Pause the opportunity to seek remedial action with the district court and reinstate the appeal without further briefing if Pause could obtain certification of partial judgment pursuant to Federal Rule of Civil Procedure 54(b).
Patents / Personal Jurisdiction
Permissive Counterclaim-Reply Does Not Provide Basis for Personal Jurisdiction
By Evan A. Parke
The U.S. Court of Appeals for the Federal Circuit has affirmed a decision dismissing a patent infringement action brought by Rates Technology, Inc. (Rates), against Nortel Networks Corp. (NNC), for lack of personal jurisdiction because at the time personal jurisdiction was contested, it was lacking. Rates Technology, Inc. v. Nortel Networks Corp., Case No. 04-1212 (Fed. Cir., Feb. 17, 2005) (Michel, J.).
After Rates filed suit against NNC for patent infringement, NNC, in its answer, raised permissive counterclaims and asserted the defense of lack of personal jurisdiction. NNC, claiming that it was a Canadian holding company that had not manufactured, used, sold or offered for sale the infringing products in the United States, moved to dismiss under Fed. R. Civ. P. 12(b)(2).
The district court scheduled a hearing on the motion to dismiss at the end of the discovery period. During discovery, Rates deposed NNC’s corporate designee and learned that a subsidiary based in the United States, Nortel Networks, Inc. (NNI) – rather than NNC – may have manufactured or sold at least some of the accused products during the period of alleged infringement. Nearly eight months later (four months after the deadline for joining additional parties had passed) and just a few days prior to the hearing, Rates filed a supplemental opposition, attaching a purported counterclaim-reply for infringement that named both NNC and NNI as defendants and repeated verbatim its prior infringement allegations against NNC.
At the hearing, Rates argued that by raising permissive counterclaims, NNC had consented to personal jurisdiction and effectively waived this defense. The district court disagreed and granted NNC’s motion to dismiss, holding that NNC had not waived personal jurisdiction, as the defense was asserted in a timely fashion at the inception of the litigation. The court also dismissed Rates’ claims against NNI, finding that Rates failed to timely and properly name and serve NNI as a defendant in suit. Rates appealed.
The Federal Circuit affirmed, holding that where a defendant properly asserts a defect in personal jurisdiction as a defense in its answer, permissive counterclaims cannot be used by the plaintiff to establish a basis for personal jurisdiction via a counterclaim-reply. The Court explained that although it was applying its own law, its conclusion was supported by jurisprudence from its sister circuits, namely the Third, Fifth, Ninth and D.C. Circuits. The Court also affirmed the district court’s dismissal of Rates’ claims against NNI, noting that Rates’ counterclaim-reply was filed some four months after the deadline for joining additional parties and without leave of court. It was, therefore, improper.
Lack of Standing Argument by Plaintiff Does Not Preclude Attorney Fee Award
By Stephanie L. Nagel
Upholding an award of attorney fees, a panel of the U.S. Court of Appeals for the Federal Circuit held that an appellant, a patent owner, could not avoid such an award by asserting that its exclusive licensee (Evident) lacked standing to bring an infringement claim in the first instance. Evident Corp. v. Church & Dwight Co., Inc. , Case Nos. 03-1514, 04-1137 and 04-1213 (Fed. Cir., Feb. 22, 2005) (Lourie, J.).
Inventors Rudy, Denholtz and Denholtz, filed a continuation-in-part (CIP) application covering formulas for toothpaste. During the course of prosecution of the CIP application, the inventors and three others formed Peroxydent Group, a New Jersey partnership, to which the inventors assigned all rights to any patent issuing from the application. Subsequently, three members of Peroxydent formed Evident Corporation. In turn, Peroxydent licensed rights under any patent issuing from the CIP application exclusively to Evident, reserving for itself only a right of first refusal to file an infringement action. Three months later, the CIP issued as U.S. Pat. No. 4,971, 782 (the `782 patent).
Armed with the `782 patent, Evident sued Church & Dwight Co. and Colgate-Palmolive Company, for infringement. The defendants filed a declaratory judgment counterclaim and joined Peroxydent as a third-party defendant. After finding the patent unenforceable due to inequitable conduct, the district court determined the case was exceptional and awarded attorney fees to Church & Dwight.
Evident and Peroxydent appealed the attorney fee award arguing that Evident lacked standing to bring the suit in the first instance and that the district court abused its discretion by holding appellants joint and severally liable for the attorney fees award.
The issue of whether Evident had proper standing to have filed suit was raised by Peroxydent, the patent owner, for the first time on appeal. Though the Court briefly discussed constitutional standing requirements, the issue centered around whether the presence of Peroxydent as a third-party defendant satisfied the standing requirement, which (in most instances) compel a patent owner to be joined when its exclusive licensee files an infringement action. Prima Tek II v. A-Roo Co . The panel agreed that the standing had been met, as Peroxydent had been brought into the suit from the start throught the counterclaim and had participated fully. Thus, the Court concluded that Peroxydent’s initial status as third-party defendant did not matter in terms of standing.
Furthermore, the Court found that the district court did not clearly err in finding the case exceptional given the inequitable conduct involved (failure by Peroxydent to cite known material prior art). Nor did the Federal Circuit think that district court improperly exercise its discretion in awarding attorney fees or in holding Peroxydent and Evident jointly and severally liable. Noting that Peroxydent shared counsel with Evident throughout all stages of the litigation and appeal and that there was no clear division between Peroxydent and Evident in terms of the arguments presented by each, the Court, citing to principles of agency and partnership, held that the district court did not abuse its discretion in making the award joint and several.
Federal Circuit Again Rejects “Importing” Limitations from Specification
By Andrew D. Mickelsen
In the context of remanding a summary judgment ruling of non-infringement, the U.S. Court of Appeals for the Federal Circuit again has held that it is improper to import limitations from a preferred embodiment into the claims absent an express declaration from the patentee. Playtex Products, Inc. v. Procter & Gamble Co. and Procter & Gamble Distrib. Co. , Case No. 04-1200 (Fed. Cir., March 7, 2005) (Gajarsa, J.).
Playtex concerned a tampon applicator with a tubular barrel having “two diametrically opposed, substantially flattened surfaces” and a slideable plunger. The opinion focuses on two claim terms: “substantially flattened surfaces” and “means for limiting the movement of [the] plunger.”
The district court determined “substantially flattened surfaces” ordinarily means “surfaces with a curvature less than either the barrel or the transitional portion of the prior art,” but also that this ordinary meaning precludes completely flat surfaces. Noting that the patent’s preferred embodiment had completely flat surfaces, the court concluded that the intrinsic evidence was ambiguous and therefore relied on an expert in plastic manufacturing to construe the term to mean “flat within a geometric, manufacturing tolerance.”
The Federal Circuit held that the ordinary meaning of “substantially flattened surfaces” was unambiguous in view of the intrinsic evidence and that it could include both flat surfaces and surfaces that are simply flatter than they had originally been. Thus, the district court erred in relying on extrinsic evidence to construe the term and improperly limited the claims to flat surfaces described in the preferred embodiment. The Federal Circuit also faulted the district court’s construction for incorrectly introducing a numerical tolerance to the flatness of the surfaces, which contradicts the purpose of using the modifier “substantially.”
With respect to the “means for limiting” the movement of the plunger (a §112, 6 claim element), the patent holder, Playtex, argued that the corresponding structure shown in the patent drawings (showing a preferred embodiment having a lip structure at both ends of the plunger) properly defined the scope of the claims. The district court rejected this argument and instead referred to the written description, which described the corresponding structure more broadly as “a curved-shaped ‘lip’ or equivalent structure on at least one, and preferably both, ends of the plunger.”
The Federal Circuit affirmed on this point, agreeing that the corresponding structure should not be limited to the single embodiment depicted in the figures, but should be broadly construed in accordance with all structures disclosed in the written description.
Patents / Commercial Sale / Offer for Sale / On-Sale Bar
A Commercial Sale of the Invention More than One Year Prior to the Effective Filing Date of a Patent Cannot Occur Prior to the Conception of the Invention
By Kenneth L. Cage
The U.S. Court of Appeals for the Federal Circuit reversed the judgment of the U.S. Court of Federal Claims (Claims Court) finding that the inventions of two patents were not the subject to a commercial sale more than one year prior to their effective filing date. Sparton Corp. v. United States. , Case No. 03-1569 (Fed. Cir., Feb. 28, 2005) (Archer, J.)
Under a Navy contract, Sparton submitted an engineering change proposal for a sonobuoy suitable to operate at shallow and deep depths. In its proposal, Sparton included a multi-piece release plate for deploying the sonobuoy. Thereafter, Sparton developed and tested a single piece release plate, which resulted in U.S. Pat. Nos. 3,921,120 and 4,029,233 (`120 patent and `233 patent, respectively).
Using contract principles, the Claims Court found that the inventions were offered for sale one year before the effective filing date of the `120 and `133 patents (or critical date). Both parties had agreed the multi-piece release plate in the proposal was not the single piece release plate of either the `120 or `133 patent. Notwithstanding the fact that the inventions of the `120 and `233 patents were not yet conceived, the Claims Court found that an offer for sale occurred before the critical date. Its logic was premised on the fact that under U.C.C. §§ 2-106(1) the Navy had a contract with Sparton for future goods where Sparton was permitted to substitute any release plate capable of performing the function recited in the proposal. However, the Claims Court paradoxically stated, “Logic dictates, however, that a device that does not completely exist cannot be the subject of an offer for sale.”
In reversing, the Federal Circuit, citing Pfaff v. Wells Elec. , held that neither invention of the `120 nor `233 patent was the subject matter of an on-sale prior to the critical date. Unlike Robotics Vision Systems, Inc. v. View Engineering, Inc. , where the invention was conceived before the offer for sale, the Court determined that where a patented invention had not yet been conceived when the alleged offer for sale took place there could be no on-sale: “[W]ith no conception of the invention, there cannot be an offer for sale or sale of that invention.”
Practice Note: Any contract as to what inventions are being sold or offered for sale under the contract should be clear and unambiguous.
