McDermott - Newsletters - IP Update, Vol. 12, No. 1, January 2009

In rejecting a petition for an en banc review of the panel decision in In re Comiskey, the en banc U.S. Court of Appeals for the Federal Circuit vacated the original panel decision but authorized a new merits panel decision that maintained the position that the claimed method directed to a method of mandatory arbitration resolution is not patent eligible under § 101. In re Comiskey; Case No. 06-1286 (Fed. Cir., January 13, 2009) (Per curiam; concurring opinion by Dyk, J., in which Michel, J. and Prost, J., join; concurring opinion by Lourie, Jr.; dissenting opinion by Moore, J., in which Newman, J and Rader, J., join; dissenting opinion by Newman, J.).

This case was originally decided in September of 2007 by a three-judge panel made up of judges Dyk, Michel and Prost). (See IP Update Vol. 10, No. 10.) In response to Comiskey’s petition for rehearing en banc, the Court granted review for the limited purpose of authorizing the original merits panel to revise its opinion. The panel issued a new decision that accompanied the en banc order, in which it revised a controversial aspect of its earlier decision that linked patent eligible subject matter under § 101 with § 103 obviousness (suggesting that claim recitations directed to non-statutory subject matter would be considered de facto obvious) but maintained its original position (raised sua sponte by the Court) that the claimed subject matter was not patentable under § 101, notwithstanding that the appeal from the U.S. Patent and Trademark Office (USPTO) was based solely on an obviousness rejection.

During the appeal, after briefing and oral arguments on the USPTO’s obviousness rejection, the Court requested supplemental briefing to address issues relating to subject matter eligibility under § 101. The USPTO immediately urged the Court to resolve the case on the basis of § 101 to “give the Office needed guidance in this area.” When the original Comiskey opinion issued, only the §101 issue was addressed.

In its new panel decision the Court maintained the same ultimate position presented in the original panel decision vis a vis the method claims:

It is thus clear that the present statute does not allow patents to be issued on particular business systems—such as a particular type of arbitration—that depend entirely on the use of mental processes. In other words, the patent statute does not allow patents on particular systems that depend for their operation on human intelligence alone, a field of endeavor that both the framers and Congress intended to be beyond the reach of patentable subject matter. Thus, it is established that the application of human intelligence to the solution of practical problems is not in and of itself patentable.

As it did in the earlier decision, the Court remanded system claims, which recited the use of the “modules,” to the USPTO to consider the patent eligibility issue in the first instance, reasoning that these claims, under the broadest reasonable interpretation, could require the use of a machine as part of the claimed arbitration system.

As for the brouhaha raised by the dissent over the sua sponte application of § 101, the panel insisted that it was “entirely consistent with precedent” for an appellate tribunal “to affirm an agency on alternative legal grounds or to remand to the agency to consider an alternative ground” and that it is not necessary that the Court first decide that the original (i.e., USPTO) rejection was erroneous.

Addressing Administrative Procedure Act (5 U.S.C.) compliance, the panel noted that under § 706 “the reviewing court need not decide the validity of every ground for affirming the agency decision.”

Judge Lourie, concurring, thought the panel should have originally decided the appeal on the grounds appealed from the USPTO’s decision, but “having rendered the decision that [the panel] did, and which it now reaffirms as to the method claims, I do not believe we need to unwind the panel decision as to those claims in order to review the § 103 rejections. The panel was and is correct that the method claims do not pass muster under 35 U.S.C. § 101, and more uncertainty in the perceived state of the law that would be engendered by vacating that conclusion is not necessary or desirable.”

Judge Moore, joined by Judges Newman and Rader dissented, arguing that the sua sponte decision to decide the case based on a new ground of rejection was itself inappropriate, but to now remand to the USPTO to address “the uncontroversial determination that the machine claims are in fact direct to patentable subject matter” is inexplicable and wasteful, given that the USPTO has already rejected the system claims as obvious. As explained by Judge Moore:

The majority’s decisions to reject the process claims on a ground never raised by either party and not to resolve the rejection of the system claims (without finding any fault in the agency’s decision making) is not consistent with the need to respect and recognize agency expertise or the interests of agency or judicial economy.

Finally, Judge Newman weighted in with a dissent (or as she put it, a “protest”) from the denial of the petition for rehearing en banc, noting that the only change from the original panel decision is the deletion of analysis: “the revised opinion does not clarify, changes no result, adds no analysis, but simply deletes its reasoning, leaving silence rather than understanding.”

Perhaps with an eye arched in the direction of the Supreme Court, Judge Newman observed that the “§ 101 split between Comiskey’s method and system claims does not conform with any relevant statute or advance any known policy” and moreover places “thousands of issued patents and pending applications … under a cloud.”

Judge Newman notes that “the panel chose to delete its statement that the ‘routine additional of modern electronics’ to a patent-ineligible invention is prima facie obvious … and also deleted the citation to KSR … from which this statement came, confounding the difference between unpatentability under § 103 and ineligibility under § 101.” In Judge Newman’s view, “[i]nstead of the half-decision of the panel, the issue of § 101 should either be remanded as to all claims, or decided as to all claims.”

Practice Note: At about the time the Federal Circuit issued its revised opinion in Comiskey, the BPAI (the USPTO’s Board of Patent Appeals and Interferences) issued a non-precedential decision in In re Cornea-Hasegan, an Intel-assigned application directed to a shortcut method of performing calculations and containing both method and apparatus claims. In affirming the examiner’s § 101 rejection against both types of claims, the BPAI concluded the § 101 analysis is the same for both “manufacture” and “process” claims, found no transformation of any article or tie to any particular machine and cited the 2007 Comiskey decision for the preposition that “the mere use of the machine to collect data necessary for application of the mental process may not make the claim patentable subject matter.” As detailed above, that statement was deleted in the newly minted Comiskey decision.

Patents / Venue

New Venue Sheriff in Eastern District of Texas
By Todd Hales

Following the recent U.S. Court of Appeals for the Fifth Circuit Volkswagen case, the U.S. Court of Appeals for Federal Circuit directed transfer of a patent infringement case, on a petition for writ of mandamus, from the U.S. District Court for the Eastern District of Texas to the U.S. District Court for the Southern District of Ohio, finding the latter to be “clearly more convenient” than the Eastern District. In re TS Tech USA Corp., Misc. Docket No. 888 (Fed. Cir., Dec. 29, 2008) (precedential order) (Rader, J.).

In October 2008, the Fifth Circuit issued an en banc opinion in Volkswagen that acknowledged a petition for a writ of mandamus as an appropriate vehicle for contesting a trial court venue determination and directed the trial court to transfer a products liability case, under 28 U.S.C. § 1404(a), out of the Eastern District. (See IP Update, Vol. 11, No. 11.) Many practitioners wondered whether the Federal Circuit would apply the Fifth Circuit jurisprudence to patent infringement suits filed in the Eastern District of Texas (E. D. Texas), a venue widely perceived as patent friendly.

Lear filed a patent infringement suit in the E.D. Texas against TS Tech based on a Lear patent relating to pivotally attached vehicle headrest assemblies. The court denied TS Tech’s forum non convenience motion under 28 U.S. C. § 1404(a) seeking transfer of the case to the Southern District of Ohio. TS Tech then filed a petition for writ of mandamus at the Federal Circuit, contending that the district court ignored precedent and clearly abused its discretion by refusing to transfer the case, arguing that there was no connection between the case and the E.D. Texas.

The Federal Circuit agreed, finding the district court made several keys errors in its analysis, which together amounted to a clear abuse of discretion. First, the Federal Circuit found that the district court gave too much weight to the plaintiff’s choice of venue, treating it as a “factor” against transfer. Second, the Federal Circuit found that the district court ignored Fifth Circuit precedent in assessing the cost of attendance for witnesses. Third, the Federal Circuit found that the district court erred by reading out of the § 1404(a) analysis the factor regarding the relative ease of access to sources of proof. Finally the Federal Circuit found that the district court disregarded Fifth Circuit precedent in analyzing the public interest in having localized interests decided at home. Citing the Fifth Circuit decision in Volkswagen, the Federal Circuit granted the writ, “[b]ecause the district court’s errors here are essentially identical [to those in the Volkswagen case], we hold that TS Tech has demonstrated a clear and indisputable right to a writ.” The Federal Circuit directed the district court to vacate its transfer order and to transfer the case to the District Court for the Southern District of Ohio.

Practice Note: Both in this case and in Volkswagen, the appellate court analysis focused on failures of the district court to properly consider the various § 1404(a) factors. It is unclear whether the Federal Circuit (or the Fifth Circuit in Volkswagen) would have found an abuse of discretion if it thought the district court had at least considered and weighted the §1404(a) factors and yet still decided to deny transfer. However, it now seems likely that venue transfer motions in the Eastern District of Texas will receive more analytical consideration (per the Fifth Circuit and Federal Circuit decisions) and more defendants will likely file forum non convenience motions and disappointed litigants will be more likely to file writs.

Patents / Contributory Infringement / Inducement / Summary Judgment Practice

Summary Judgment Motion Response-Be Sure to Establish Robust Evidentiary Dispute
By Amol Parikh and Paul Devinsky

Following a district court’s order granting full summary judgment against the plaintiff, the U.S. Court of Appeals for the Federal Circuit partially revived the plaintiff’s case, ruling that the district court had applied erroneous legal standards in dismissing the claims regarding contributory infringement and inducement. Ricoh Co., Ltd. v. Quanta Computer Inc., Case No. 07-1567 (Fed. Cir., Dec. 23, 2008) (Per curiam; Gajarsa, J., dissenting in part).

Ricoh is the owner of four patents, U.S. Patents Nos. 6,631,109 (the ’109 patent), 6,172,955 (the ’955 patent), 5,063,552 (the ’552 patent), and 6,661,755 (the ’755 patent), directed to various aspects of optical disc drive technology that can be used with recordable optical discs and disc drives and rewritable optical discs and disc drives. Recordable optical discs and disc drives allow a user to permanently record data; rewritable optical discs and disc drives allow a user to record, erase and overwrite data.

The ’109 patent is directed to methods and apparatus for writing information to a rewritable optical disc. The ’955 patent is directed to methods and apparatus for formatting rewritable optical discs as a background process that can be interrupted to carry out a read or write command. The ’552 patent is directed to a method and apparatus for controlling the speed disc drive spins an optical disc to increase recording capacity. The ’755 patent is directed to methods of writing data to optical discs in multiple sessions in a manner that prevents read errors.

Quanta is a manufacturer of notebook computers and is a partial owner of a company that manufactures optical disc drives. Quanta does not sell its products directly to consumers, but does sell to U.S.-based customers that in turn sell to consumers. NU Technologies (NU) is one of Quanta’s customers that sells Quanta’s products directly to consumers in the United States.

Ricoh filed a lawsuit against Quanta and NU for directly and indirectly infringing each of the Ricoh patents. In granting summary judgment in favor of Quanta and NU, the district court held that the asserted claims of the ’109 patent are obvious, that the asserted claims of the ’955 patent were not infringed and that issues of material fact existed as to whether the accused devices perform the methods of the asserted claims of the ’552 and ’755 patents. However, with respect to the ’552 and ’755 patents, the district court nevertheless dismissed Ricoh’s claims of infringement against Quanta and NU, ruling that Ricoh had failed to create material issues of fact as to direct and indirect infringement under the provisions of 35 U.S.C. § 271(a)-(c). Ricoh appealed.

The Court first considered the district court’s finding that the asserted claims of the ’109 patent were obvious in view of two European patents owned by Ricoh that taught a recording speed that overlapped with the claimed range. Ricoh argued that the European patents teach away from the claimed invention and that the claimed invention provides new and unexpected results. The Court rejected Ricoh’s argument, instead finding that there was no teaching away since the physical upper limit on the prior art recording speed did not teach away from higher speeds and that the claimed invention (recording at higher speeds) was the “quintessence of ‘ordinary skill’” and “common sense” rather than patentable innovation. The Court did not recognize material factual issue regarding unexpected results.

The Court next considered the district court’s decision that Ricoh had presented no evidence to create a material issue of fact as to infringement of the asserted claims of the ’955 patent, each of which requires a formatting process that begins as a background process. The Court found that because the accused devices start formatting as a foreground process (which is then in turn switched to a background process), the district court properly found that there was no material factual dispute that the accused devices did not infringe the ’955 patent.

Direct Infringement of the Claimed Method

The Court considered Ricoh’s claims of direct infringement for the ’552 and ’755 patents. With respect to Ricoh’s claims that Quanta directly infringed the ’552 and ’755 patents through the sale or offer for sale of software that causes the accused devices to perform the claimed methods, the Court addressed an issue that it recognized had been left undecided in NTP v. RIM (see IP Update, Vol. 8, No. 8). Citing the Supreme Court’s 2007 decision in Microsoft v. ATT (see IP Update, Vol. 10, No. 5), the Court held that the sale or offer to sell “software containing instructions to perform a patented method does not [directly] infringe the patent under § 271(a).” Rather, “the actual carrying out of the instructions is that which constitutes [direct infringement of] a process within the meaning of § 271(a).”

Contributory Infringement

On the issue of contributory infringement, the district court held that even though Quanta’s accused drives might be capable of being used to infringe the patented processes of the ’552 and ’755 patents, there could be no liability for contributory infringement because the drives were also capable of being used in a manner that did not infringe the patents. However, for the purposes of the appeal, the Federal Circuit accepted Ricoh’s evidence that the accused drives contain at least some distinct and separate components used only to perform the allegedly infringing methods.

In order to resolve the question concerning the scope of liability for contributory infringement the Federal Circuit focused its inquiry on the interpretation of the Supreme Court’s decision in Sony Corp. of America v. Universal Studios. (concluding that VCRs capable of and widely used for non-infringing did not constitute contributory infringement) and Metro-Goldwyn-Mayer Studios v. Grokster (finding infringement where a component adapted for use in a patented process and with no substantial non-infringing use would be “good for nothing else” but infringement of the patented process).

Considering the issue thus raised to “present . . . an important and previously unresolved question” as to “the scope of liability for contributory infringement” the Federal Circuit, based on the rulings in Sony and Grokster, held that a competitor who sells a device that enables infringement of a patented process “should not be permitted to escape liability as a contributory infringer by embedding that [device] in a larger product with some additional, separable feature.” The Court noted that if it were to hold otherwise, then so long as the product as a whole has substantial non-infringing uses, no contributory liability would exist despite the presence of a component that, if sold alone, would plainly incur liability. The Court thus vacated the district court’s grant of summary judgment and remanded for a determination of whether the accused products contain components that have no substantial non-infringing use other than to practice the claimed method.

Active Inducement

Finally, the Court considered the district court’s ruling that Ricoh had not presented evidence as to Quanta’s intent to induce infringement by its customers (i.e., retailers) as well as the end-users of the drives. The district court reasoned that a finding of active inducement required an affirmative act that is communicated to the direct infringer. In granting summary judgment, the district court considered several types of evidence of Quanta’s intent, including a presentation given by Quanta to a customer touting the advantages of the accused products. Based on this evidence, the district court concluded that while the evidence might show that Quanta may have known that its customers would perform the patented method, it did not show that Quanta encouraged infringement by its customers.

The Federal Circuit concluded that the district court incorrectly applied the law of active inducement. Turning again to Grokster, the Federal Circuit noted that a showing of intent did not require that the accused indirect infringer communicate a message of encouragement to the alleged direct infringer. Rather, “liability for active inducement may be found ‘where evidence goes beyond a product’s characteristics or the knowledge that it may be put to infringing uses, and shows statements or actions directed to promoting infringement.’”

There was no dispute that Quanta knew of Ricoh patents. Thus, in the context of the inducement analysis, the Federal Circuit reasoned that the district court improperly discounted relevant evidence regarding a presentation Quanta made to a customer that was probative of whether Quanta possessed the requisite intent under DSU (see IP Update, Vol. 9, No. 12) that its drives would be used to perform the infringing methods and that was relevant to the issue of whether it encouraged the customer to use the drives in an infringing manner. The fact that the presentation may have failed to communication any information regarding the patented methods does not render it irrelevant as to Quanta’s intent since, as the Court noted, circumstantial evidence may be sufficient to prove the required intent under DSU.

The Federal Circuit also held that the district court incorrectly analyzed other circumstantial evidence presented by Ricoh. Specifically, Ricoh argued that Quanta’s specific intent is shown by the affirmative act of incorporating components whose sole purpose is to cause the drives to operate in a manner that infringes the ’552 and ’755 patents. The Federal Circuit held that to the extent the drives contain components that are separable from those used to implement non-infringing functions and to the extent those components have no purpose under normal use other than to perform infringing functions, such evidence creates a material issue of fact regarding Quanta’s intent that that drives be used to infringe the ’552 and ’755 method patents. Therefore, the Court remanded for further proceedings the issue of active inducement.

Dissent

Judge Gajarsa dissented as to the panel’s decision on contributory infringement, arguing that under controlling Federal Circuit precedent (Hodosh v. Block Drug), the Court must analyze the accused product as it is actually sold and not in terms of its constituents or component. Thus, Judge Gajarsa would focus the § 271 (c) inquiry on whether the accused product, as actually sold, is suitable for substantial non-infringing use. To do otherwise, argues Judge Gajarsa, would “block the wheels of commerce.”

Practice Note: In the wake of the Federal Circuit decision in Seagate (see IP Update, Vol. 10, No. 8) mere knowledge of a patent is not relevant to the issue of willfulness. However, according to the Court here, such knowledge may be relevant circumstantial evidence of intent to induce infringement (under DSU).

Patents / Permanent Injunctions

In a Close Call-Permanent Injunction Affirmed
By Alexis Garcha

Addressing whether a district court had properly applied the traditional four-factor test for injunctive relief, the U.S. Court of Appeals for the Federal Circuit affirmed the grant of an injunction even in the face of past licenses and testimony that the accused product was medically superior. Acumed L.L.C. v. Stryker Corp., Case No. 04-CV-513 (Fed. Cir., Dec. 30, 2008) (Lourie, J.).

In 2004 Acumed sued Stryker for infringing a patent covering orthopedic nails. In September 2005, a jury found Stryker had willfully infringed Acumed’s patent and granted Acumed a permanent injunction. Stryker appealed to the Federal Circuit, which affirmed the finding of willful infringement but remanded the case for determination of the injunction in view of the Supreme Court’s Ebay decision, requiring the traditional four-factor test be applied to patent cases.

Following Ebay, the district court determined Acumed was entitled to a permanent injunction because it suffered irreparable harm, no other remedy available at law was adequate, the balance of the hardships favored it and public interest was not disserved by an injunction.

Stryker appealed the injunction to the Federal Circuit, arguing that the district court had incorrectly decided each factor. First, the Federal Circuit considered whether, given Acumed’s past willingness to grant a license, could Acumed show it suffered irreparable injury and had no adequate remedy at law. The Federal Circuit explained past willingness to grant a license is only one factor. Courts can also consider “the identity of the past licensees, the experience in the market since the licenses were granted and the identity of the new infringer.” Here the district court did not abuse its discretion because it had considered the past licenses.

Next, the Federal Circuit reviewed whether the balance of hardships favored Acumed in spite of Stryker’s argument that it undertook considerable expense to design its product. The Federal Circuit determined the court did not abuse its discretion in refusing to consider Stryker’s expenses because those expenses related to an infringing product.

Finally, the Federal Circuit explained the court “was within its discretion to conclude that the public interest was not disserved by an injunction” despite testimony that the infringing product was medically superior. The Federal Circuit reasoned the district court “was in the best position to assess the credibility of the witnesses and affiants and to weigh the evidence to determine whether enjoining Stryker would cause a public health problem.”

The Federal Circuit concluded this was a close case but ultimately found the district court had not abused its discretion because it “had performed the required analysis” for each factor. The Court noted that the mere fact that the district court was not persuaded by any of Stryker’s arguments is not enough to overturn a decision.

**WEB ONLY**
Patents / Patent Eligible Subject Matter (§ 101)

Claim Construction Not Requiring Use of a Particular Machine Leads to Subject Matter Ineligibility
By Eric M. Shelton

The U.S. Court of Appeals for the Federal Circuit in In re Bilski (see IP Update, Vol. 11, No. 11), substantially modified the test for patent eligibility of process claims, creating a new “machine or transformation test.” In one of its first precedential cases applying the new Bilski test, the U.S. Patent and Trademark Office Board of Patent Appeals and Interferences (the BPAI or Board) has explained its evolving views regarding of the effect of the Bilski decision on computer-based process claims. Ex parte Koo, Appeal No. 2008-1344 (BPAI, Nov. 26, 2008) (Jeffery, APJ).

Koo filed a patent application claiming, among other things, a “method for optimizing a query in a relational database management system.” Koo appealed to the Board to overcome a rejection for obviousness under § 103. Although agreeing with Koo that the § 103 rejection was not appropriate, on its own initiative the Board raised a new basis of rejection against the application¾subject matter ineligibility under § 101.

Applying the framework set forth in Bilski, the Board concluded that since the claim recited a method, it was a statutory process claim and therefore subject to the “machine or transformation test” for patent eligibility. Under the first prong of this test (i.e., was the claim limited to a particular apparatus), the Board concluded that a nominal recitation of a “system” in the preamble did not limit the claim to a particular machine or apparatus. Rather, applying the “broadest reasonable interpretation” of the claims, i.e., the standard used during U.S. Patent and Trademark Office (USPTO) examination, the BPAI concluded that the recited “system” could be a software system, with steps such as “evaluating,” “determining” and “reforming” being implemented in software or algorithms. Under the second prong of the Bilski test (whether the claimed method resulted a transformation of something), the Board concluded that the claims did not transform an article, or even transform data or signals (which under Bilski would further have to represent physical articles). Thus, the Board concluded that some of the claims on appeal were not patent eligible under § 101, leaving the examiner to reconsider the patentability (or patent eligibility) of the remaining claims.

Practice Note: Where a computer-related method claim is capable of a construction that does not require use of a “particular machine or apparatus,” the USPTO may assert § 101 subject matter ineligibility. As demonstrated above, the mere mention of a “system” in the preamble may not be enough to save the claim from being subject to the two-part Bilski analysis for subject matter eligibility.

Of related interest is a one-paragraph affirmance by the Federal Circuit based on Bilski. In Classen Immunotherapies v. Biogen IDEC, Case Nos. 06-1634, -1649 (Fed. Cir., Dec. 19, 2008) (Moore, J.) (nonprecedential), in the context of claims directed to a “method of determining whether an immunization schedule affects the incidence or severity of a chronic immune-related disorder,” the Federal Circuit affirmed to a ruling of ineligibility under §101 on the ground that the claims failed the Bilski machine or transformation test.

Patents / Claim Construction

“Mechanism” Limitation Qualifies for Means-Plus-Function Treatment
Contact Paul Devinsky

Addressing the question of structural equivalents under the means-plus function limitation (§112, ¶ 6), the U.S. Court of Appeals for the Federal Circuit affirmed the district court’s grant of summary judgment, finding that the district court correctly construed the critical claim element of the asserted patent as a means-plus-function limitation. Welker Bearing Co. v. PHD, Inc., Case No. 06-13345 (Fed. Cir., Dec. 15, 2008) (Rader, J.).

Welker Bearing asserted two patents directed to welding pin clamps against two of PHD’s clamping products “Clamp 1” and “Clamp 2.” The Federal Circuit upheld the lower courts rulings of non-infringement for both accused products.

With respect to Clamp 1, Welker Bearing argued that PHD infringed by failing its affirmative duty to take the accused product off the market once the asserted patent issued. Affirming the district court’s ruling of non-infringement, the Federal Circuit noted that the record does lacks any evidence that PHD continued to offer its product for sale once the patent issued. “Mere possession of a product which becomes covered by a subsequently issued patent does not constitute an infringement of that patent until the product is used, sold, or offered for sale in the United States during the term of the patent.”

Next, the Federal Circuit addressed the question of whether the district court correctly construed the claim element “mechanism for moving said finger” to imply a means-plus-function limitation. Court precedent applies means-plus-function treatment “only to purely functional limitations that do not provide the structure that performs the recited function.” The Court noted that applicant could have added additional modifiers to supply more structural context to the ambiguous term “mechanism,” e.g., a “finger displacement mechanism,” a “lateral projection/retraction mechanism” or even a “clamping finger actuator.” Without any additional qualifier, the Court determined that “mechanism” lacks structure and the district court was correct in applying the means-plus-function limitation.

As a means-plus-function claim element, the limitation “mechanism” requires a corresponding structure in the specification for its broad functional language. The Court pointed out that literal infringement of a claim limitation under means-plus-function treatment “requires that the relevant structure in the accused device perform the identical function recited in the claim and be identical or equivalent to the corresponding structure in the specification.” The Court noted that, although the asserted claim does not on its face require any rotating mechanism, construing “mechanism” as a means-plus-function limitation compels defining “mechanism for moving said finger” to include a rotating central post¾the only structure provided for “mechanism” in the specification. The Court concluded that, because PHD’s Clamp 2 is a linear moving mechanism for finger movement and does not use any rotational movement, the accused product is substantially different from the construed claim and does not infringe.

Practice Note: Patent drafters should be mindful when using means-plus-function language in their claims. Even if the claim does not include the word “means,” the means-plus-function doctrine may apply to similar generic words that lack structure. Under the means-plus-function doctrine, a claim that appears broadly written on its face will be limited to the particular structures disclosed in the specification that perform the claim function and structural equivalent.

Patents / Expert Testimony

Patent Lawyers Not Qualified to Testify on Validity and Infringement
By Margaret M. Duncan and Rita J. Yoon

The U.S. Court of Appeals for the Federal Circuit recently drew a line between permitted testimony by technical experts and prohibited testimony on ultimate issues of patent law by legal experts. The Court held that patent lawyers lacking technical expertise in the pertinent art are not qualified to testify on such technical issues as invalidity and infringement. Sundance, Inc. v. DeMonte Fabricating Ltd., Case Nos. 08-1068, -1115, 2008 U.S. App. LEXIS 26082 (Fed. Cir. Dec. 24, 2008) (Moore, J.).

Sundance sued DeMonte Fabricating Ltd. (DeMonte) for infringement of a patent for retractable covers that are customarily used on trucks. Over Sundance’s objection, the district court allowed a patent lawyer to testify as DeMonte’s expert witness on invalidity and non-infringement. At trial, DeMonte’s patent lawyer offered technical testimony on the claimed invention and prior art and concluded that Sundance’s patent was invalid as obvious. DeMonte’s patent lawyer, however, had no technical experience in the field of the invention and had practiced engineering for less than two years. The case was tried to a jury, and the jury agreed with DeMonte’s patent lawyer on obviousness and invalidity. The district court subsequently overturned the jury’s verdict, granting Sundance’s motion for judgment as a matter of law that the patent-in-suit was valid.

The Federal Circuit reversed, concluding that Sundance’s patent was invalid as obvious-not on the basis of DeMonte’s expert patent law testimony-but as a matter of law. The Court reasoned that expert testimony was not needed in this case because the “technology is simple and neither party claims that expert testimony is required to support such a holding.”

The Court further held that the district court abused its discretion by allowing DeMonte’s patent lawyer, who lacked relevant technical expertise, to testify as an expert witness on the issues of validity and infringement. The Court’s reasoning was simple: DeMonte’s patent lawyer had no technical expertise in the pertinent art and thus could not provide reliable testimony from the perspective of a person of ordinary skill in the art. Such testimony would violate the standard of admissibility under Daubert and Rule 702 of the Federal Rules of Evidence. The Court further reasoned that technical testimony by unqualified patent lawyers “serves only to cause mischief and confuse the factfinder” and “amounts to nothing more than advocacy from the witness stand.”

DeMonte argued that the Court’s precedent in Snellman v. Ricoh Co., permits patent lawyers to opine on ultimate legal questions of validity and infringement. The Court disagreed with DeMonte’s characterization of Snellman, explaining that such testimony “invades the province of the jury to find facts and that of the court to make ultimate legal conclusions.”

The Court cautioned that its decision should not be read as requiring expert witnesses “to possess something more than ordinary skill in the art.” In addition, the Court noted that those patent lawyers lacking technical expertise in the pertinent art may still testify as expert witnesses “in contexts other than non-infringement and invalidity, such as patent office practice and procedure.”

Patents / Protection Waiver

Once an Argument Is Waived on Appeal, It’s Gone Forever
By Nathaniel McQueen and Paul Devinsky

In a relatively rare § 145 appeal that reached the U.S. Court of Appeals for the Federal Circuit via a district court, the U.S. Court of Appeals for the Federal Circuit affirmed a district court ruling that, subject to certain waiver and claim grouping considerations, the U.S. Patent and Trademark Office (USPTO) was justified in rejecting all 2,400 claims in 12 separate continuation applications, dating back to the early 1980s. Hyatt v. Dudas, Case No. 07-1050 (Fed. Cir., Dec. 23, 2008) (Gajarsa, J.) .

During prosecution of the applications, the most common basis for rejection was that the claims lacked written description support under § 112, ¶ 1. Although Hyatt argued that each of his claims should be reviewed independently, he only discussed and argued the rejections of 21 of his claims in his appeal brief to the USPTO Board of Patent Appeals and Interferences (the Board). On this basis, the Board selected these 21 claims as representative of all 2,400 claims on appeal and affirmed the examiner’s rejections of all the claims based on the rejections of the 21 claims.

In the § 145 appeal, the district court agreed with the USPTO that Hyatt failed to separately argue each of his claims, but nevertheless held that the Board improperly selected the 21 claims as representative of Hyatt’s remaining claims because, under § 1.192(c)(7), the Board should not have grouped the claims unless each of the claims shared a limitation that was not disclosed in the specification. Accordingly, the district court remanded the case to the Board with instructions to regroup and reconsider Hyatt’s claims.

The USPTO appealed the remand order, raising two issues: the extent to which 37 C.F.R. § 1.192(c)(7) permits the Board to affirm the rejections of groups of patent claims based upon its consideration of certain representative claims, and whether the district court’s remand order requires the Board to consider arguments that Hyatt allegedly waived by failing to raise them before the Board in his initial appeal.

“Ground of Rejection”

The Federal Circuit’s decision hinged on the definition of “ground of rejection” as set forth in § 1.192(c)(7). The USPTO argued that “ground of rejection” meant the statutory section under which a claim was rejected. In other words, according to the USPTO, if a grouping consisted of claims which all failed to satisfy § 112, ¶ 1 (regardless of the limitations set forth in each claim) the grouping was proper. Conversely, Hyatt argued that “ground of rejection” meant both the statutory section under which the claim was rejected and the reason why the claim failed to meet that statutory requirement.

The Federal Circuit, relying on In re McDaniel, explained that under its precedent § 1.192(c)(7) was interpreted to mean that the rule operates to relieve the Board from reviewing the myriad of distinctions that might exist among claims which are of no patentable consequence to a contested rejection. In McDaniel, the court held that the USPTO’s interpretation of § 1.192(c)(7) was clearly erroneous and that the Board erred in treating four claims, each rejected under § 103(a), as a commonly rejected group, because each claim was rejected over different references.

The Federal Circuit noted that this interpretation of “ground of rejection” is consistent with the fact that the USPTO bears the initial burden of presenting a prima facie case of unpatentability. Since the USPTO’s Manual of Patent Examination Procedure (MPEP) expressly instructs the examiner to specify which claim limitation is lacking adequate support in the written description, the relevant “ground of rejection” is the USPTO’s identification of a specific limitation that lacks written description support.

As such, the Federal Circuit held that claims rejected for lack of written description do not share a common “ground of rejection” under § 1.192(c)(7) unless the claims share a common limitation that lacks written description support. Accordingly, the Federal Circuit affirmed the district court’s remand order, instructing the Board to regroup and reconsider Hyatt’s claims according to appropriate representative claims.

Waiver

Turning to the issue of whether the Board (on remand) must consider the grounds of rejection that Hyatt failed to contest in his initial appeal to the Board, the Federal Circuit held that the Board need not consider the waived rejections. The Federal Circuit explained that § 1.192(c)(7) clearly states, “for each ground of rejection which appellant contests and which applies to a group of two or more claims, the Board shall select a single claim from the group and shall decide the appeal as to the ground of rejection on the basis of that claim alone.” Thus, the Federal Circuit concluded that rule places no burden on the Board to reconsider a waived rejection. Accordingly, the Federal Circuit found that the Board is free on remand to apply the rule of waiver to any grounds of rejection not contested by Hyatt in his initial appeal to the Board.

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Patents / Obviousness / Waiver

Failure to Argue Intervening Change in Law Before Entry of Judgment Below Waived Challenge to Jury Instructions on Appeal
By Mary Boyle, Ph.D.

Finding waiver of a post-KSR challenge to jury instructions, the U.S. Court of Appeals for the Federal Circuit upheld a finding of non-obviousness and affirmed a judgment of infringement. Rentrop v. Spectranetics Corp., Case No. 07-1560 (Fed. Cir. Dec. 18, 2008). (Walker, District Judge., sitting by designation.

A jury found that Spectranetics’ cardiac catheters infringed the patent-in-suit and that the relevant claim was not invalid for obviousness. The Supreme Court’s landmark opinion in KSR issued after the jury verdict but before the lower court’s resolution of post-trial motions. On appeal to the Federal Circuit, Spectranetics argued for the first time that the jury instructions on obviousness conflicted with KSR. As the Federal Circuit explained, Spectranetics was barred from attacking the jury finding of non-obviousness directly on appeal because Spectranetics did not move for judgment as a matter of law on obviousness below. Spectranetics instead argued to the Federal Circuit that obviousness was so evident that the jury could only have found non-obviousness because of error in the jury instructions.

Rentrop contended that Spectranetics waived its challenge to the jury instructions. The Federal Circuit agreed. The Federal Circuit reasoned that in this case, unlike other cases cited by Spectranetics, the trial court had not yet entered judgment at the time KSR was decided. Because Spectranetics failed to bring KSR to the attention of the trial court, the trial court was deprived of the opportunity to consider the decision. The Federal Circuit held that “when there is a relevant change in the law before entry of final judgment, a party generally must notify the district court; if the party fails to do so, it waives arguments on appeal that are based on the change in the law.”

The Federal Circuit further explained that the challenged jury instructions were consistent with KSR, in any event. The jury instructions stated that there “must have been a motivation or a suggestion to combine.” While recognizing that KSR rejected the rigid use of a “teaching, suggestion and motivation” test, the Federal Circuit concluded that, here, any possible error was negated by the further definition of “motivation” “in unrigid terms”: “The motivation may arise from common knowledge, or common sense of the person of ordinary skill in the art, without any specific hint or suggestion in a particular reference.” The disputed instructions further stated that the test for obviousness is not whether it would be obvious to try to solve the problem that the invention solves. The Federal Circuit observed that the challenged instruction did not conflict with KSR, which recognizes that obviousness may be shown if a specific combination of elements was obvious to try, but that the test is a flexible one.

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Patents / Declaratory Judgment / Personal Jurisdiction

Stream of Commerce Not Sufficient for Declaratory Judgment of Personal Jurisdiction
By Christopher L. May

In a split panel decision, the U.S. Court of Appeals for the Federal Circuit examined the requirements for personal jurisdiction in a declaratory judgment action in the case of Avocent Huntsville Corp. et al. v. Aten Int’l Co., Ltd., Case No. 07-1353 (Fed. Cir., Dec. 16, 2008) (Linn, J.; Newman, J., dissenting).

Avocent and Aten are competitors in the keyboard-video-mouse switch market. In 2007, Avocent filed a declaratory judgment action against Aten in the U.S. District Court for the Northern District of Alabama, its home district. As the basis of personal jurisdiction, Avocent pled that Aten had sent a letter to Avocent in Alabama, a letter to Avocent’s counsel in Virginia and a letter to Amazon.com in Washington, alleging that Avocent’s products infringed Aten’s patents. Avocent also pled that Aten had placed its products in the “stream of commerce” intending for those products to reach the Northern District of Alabama, and therefore jurisdiction was proper under World-Wide Volkswagen.

First, the Court found that the “stream of commerce” theory was insufficient to establish general personal jurisdiction. With respect to specific personal jurisdiction, the Court found that, for a declaratory judgment action, the claim arises out of the patentee’s accusations of infringement, not the making, using or selling of the product. Accordingly, in order to demonstrate jurisdiction there must be sufficient contact with the forum relating to the accusations for jurisdiction to be proper. Further, because of “principles of fair play and substantial justice afford a patentee sufficient latitude to inform others of its patent rights without subjecting itself to jurisdiction in a foreign forum,” there must be an additional act other than sending letters to the declaratory judgment plaintiff, for example, communication with a licensee in the forum. Based on the facts in this case, the Court found that jurisdiction was not proper. Although the court expressed concerns that its ruling would permit foreign patentees to shield themselves from U.S. patent law by making it difficult to obtain jurisdiction, the court noted that 35 U.S.C. § 293 confers personal jurisdiction over patentees on the U.S. District Court for the District of Columbia.

Judge Newman dissented from the decision, finding that Aten’s contacts with the Northern District of Alabama from regular sales of its products, as well as from the infringement accusations sent to Avocent in the forum, were sufficient to grant personal jurisdiction. In addition to the concerns about foreign patentees discussed by the majority, Judge Newman also raised the concern that the majority’s decision would keep pendent state law claims from being raised in a declaratory judgment action, as the District of Columbia court could find that pendent jurisdiction did not cover those claims.

Patents / Claim Construction

USPTO Must Interpret Claims in Light of the Specification
Please contact Paul Devinsky

The U.S. Court of Appeals for the Federal Circuit reversed the Board of Patent Appeals and Interferences (BPAI) decision, rejecting claims of Wheeler’s patent application as being anticipated under 35 U.S.C. § 102. In re Wheeler, Case No. 08-1215, (Fed. Cir., Dec. 19, 2008) (Newman, J.).

Wheeler’s patent application covers a fishing pole having an illuminated transparent rod. Claim 1 recites, in pertinent part, “an illuminated fishing pole that includes an elongated hollow fishing rod having a free end and a fixed end, said elongated fishing pole being made from a transparent, flexible material.” The BPAI construed claim 1 to only require a portion of the pole to be illuminated. Therefore, BPAI held that claim 1 is anticipated by U.S. Patent Number 5,644,864 (Kelly), which also discloses a fishing pole having a portion thereof illuminated. Wheeler disagreed arguing that claim 1 cannot be anticipated by Kelly because claim 1 requires that the entire fishing pole be illuminated and Kelly discloses illuminating only a portion of the fishing pole.

The Federal Circuit, reviewing BPAI claim construction de novo, agreed with Wheeler. The Federal Circuit held that “[a]lthough the claims during examination are given broadest reasonable interpretation in order to facilitate precision in claiming, that interpretation must be consistent with the specification, and claim language should be read in light of the specification as it would be interpreted by one of ordinary skill in the art.” To this end, the Federal Circuit noted that Wheeler’s specification and claim 1 state that the entire rod is transparent and flexible and illuminated. Accordingly, the Federal Circuit held that Kelly cannot anticipate claim 1 because Kelly only discloses a fishing pole with a portion thereof illuminated.

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Patents / Claim Construction

Claim Construction Upheld to Deny Preliminary Injunction Against Google
Contact Paul Devinsky

The U.S. Court of Appeals for the Federal Circuit affirmed a denial of injunctive relief on the basis that the district court had correctly construed the sole claim limitation at issue. The Court limited review to the preliminary injunction, which was analyzed under the “abuse of discretion” standard. Since counterclaims still remained in the district court, the Court found that there was neither a final judgment nor an appealable judgment that would give the jurisdiction required to review the district court’s grant of summary judgment and sua sponte dismissal of the remainder of the plaintiff's claims. iLor, LLC v. Google, Inc., Case No. 08-1178 (Fed. Cir., Dec. 11, 2008) (Linn, J.).

iLor brought suit against Google, alleging that the Google Notebook infringed a patent claim directed to a “method for adding a user selectable function to a hyperlink.” The district court construed the disputed limitation of the claim at issue as requiring that the user selectable function be “automatically displayed upon placement of the cursor in proximity to a hyperlink with no further action on the part of a user.” Since it was undisputed that the Google Notebook required the user to right-click on the hyperlink to display the toolbar, the Google Notebook was not found to contain the “automatic display” limitation set forth in the claim as construed by the district court.

The district court relied upon the claim language, the specification and the prosecution history to support its construction of the claim at issue. The claim recited “the toolbar being displayable based on a location of a cursor in relation to a hyperlink.” The district court found that any ambiguity in the language was eliminated when viewed in light of the specification and prosecution history. The abstract of the patent provided that “[w]hen the cursor has remained near the hyperlink for a predetermined time period, a toolbar is displayed.” Similarly, the specification described the displayable toolbar as appearing when the cursor was over or near a hyperlink. No embodiments were disclosed in the specification that required the user to take any other action in addition to moving the cursor over or near the hyperlink, such as right-clicking. Further, the district court found that the “prosecution history revealed that iLor distinguished a prior art reference … on the basis that it required further user action for display, not merely locating the cursor proximate to the hyperlink.”

The Federal Circuit affirmed the denial of injunctive relief after finding the claim construction of the district court to be correct, since iLOR disputed the denial of its motion for a preliminary injunction only on the basis of the claim construction. The remaining issues raised in the appeal were dismissed by the Court as relating to matters still remaining before the district court.

Copyright / Infringement

“Thin” Copyright for Arrangement and Coordination of Common Architectural Elements Won't Cut It
By Jeremy T. Elman

Addressing for issue of similarity of copyrighted architectural plans, the U.S. Court of Appeals for the Eleventh Circuit held that no reasonable observer could find that two plans in dispute were substantially similar. Intervest Construction, Inc. v. Canterbury Estate Homes, Inc., Case No. 07-12596 (11th Cir., Dec. 22, 2008) (Goldberg, J., sitting by designation).

Plaintiff Intervest Construction created a four-bedroom floor plan called “The Westminster” in 1992 as a work-made-for-hire by Intervest. Defendant Canterbury Estate Homes, Inc. created a four-bedroom floor plan called “The Kensington.” Each floor plan included certain elements common to most houses.

The Court stated that pursuant to 17 U.S.C. §101’s definition of “architectural work,” individual standard features which include “common windows, doors, and other staple building components” are not copyrightable. However, the arrangement and composition of spaces and elements in the design demonstrates Congress’ appreciation that creativity in architecture frequently takes the form of a selection, coordination or arrangement of unprotectable elements into an original, protectable whole. Architectural works are only entitled to thin protection when only the arrangement and coordination of unprotectable elements is alleged, as here.

The Court, comparing the architectural work’s unprotectable common features to the protectable arrangement and compilation aspects to a compilation copyright’s idea/expression dichotomy, found that judges are better than juries at determining where to draw the line: “The reason for this is plain¾the ability to separate protectable expression from non-protectable expression is, in reality, a question of law or, at the very least, a mixed question of law and fact.”

Here, the district court carefully compared the protectable aspects of the two floor plans at issue, thus focusing only on the narrow arrangement and coordination of otherwise standard architectural features. When courts have dealt with copyright infringement claims involving creative types of works, “substantial similarity” has been defined as existing “where an average lay observer would recognize the alleged copy as having been appropriated from the copyrighted work.” The Court held that there were many dissimilar features to the average lay observer of each party’s four-bedroom plans, including the square footage, garage, bedrooms, closets, bathrooms, nooks and shapes of the rooms. The Court held that these elements were dissimilar in their arrangement and coordination. Thus, the Court concluded that since the copyright was “thin” (because only the arrangement and coordination were protectable), the district court correctly found that there was no substantial similarity and no copyright infringement.

Practice Note: Architectural copyrights are usually construed to bestow only narrow copyright protection. A plaintiff enforcing a copyright architectural must establish that the allegedly infringing work is substantially similar to the plaintiff's work with regard to its protected elements.

Copyright DMCA Safe Harbor

Video-Sharing Website Protected by DMCA Safe Harbor
By Han (Jason) Yu

In 2008, the video-sharing website Veoh.com (Veoh) won two notable decisions under the “safe harbor” provisions of the Digital Millennium Copyright Act (DMCA). Io Group, Inc. v. Veoh Networks, Inc., No. C06-03926 (N.D. Cal., Aug. 27, 2008) (Lloyd, Distr. J.) and UMG Recordings, Inc. v. Veoh Networks, Inc., 2008 WL 5423841 (C.D. Cal., Dec. 29, 2008) (Matz, Distr. J.).

Launched in 2006, Veoh allows users to “upload” videos to its site, which can then be accessed and shared by others via streaming and/or downloading. In June 2006, Io Group (Io), a provider of adult content, sued Veoh alleging that video clips from its copyrighted content had been made available on Veoh’s website without permission. Then in September 2007, Universal Music Group (UMG) also sued Veoh alleging “massive” copyright infringement on Veoh’s website and likening Veoh’s service to that of Napster, Aimster, etc. In both cases, Veoh asserted the affirmative defense that it qualified for “safe harbor” under § 512(c) of the DMCA.

Section 512(c) of the DMCA exempts an online service provider from all monetary damages and most equitable relief for infringement of copyright by reason of “the storage at the direction of a user of material that resides on a system or network controlled or operated by or for the service provider.” To qualify for such “safe harbor,” however, a service provider must adopt, reasonably implement and inform users of a repeat infringer policy; accommodate, and not interfere with, standard technical measures used by copyright owners to identify or protect copyrighted works; not know of infringement or facts or circumstances from which infringement is apparent; upon knowledge or notice of infringement, act expeditiously to remove or disable access to the subject content; have no right or ability to control the infringing activity, or¾if the service provider has such right and ability¾receive no direct financial benefit from such activity.

The Io case turned on whether Veoh was qualified to receive the § 512(c) safe harbor protection. In concluding that Veoh was so qualified, the court found that Veoh had taken steps to reduce, not foster, copyright infringement on its website, including publishing policies and procedures for receiving and handling infringement notices; removing noticed content on the same day of receipt of an infringement notice (or within a few days thereafter); terminating a repeat offender’s account and postings and blocking him or her from opening a new account with the same email address (Veoh asserted that it terminated over 1,000 users for repeat copyright violations since launch); and implementing a form of encryption known as “hashing” for each video file to enable Veoh to terminate access to and prevent uploading of identical files. Other notable findings by the court include those that state Veoh did not lose safe harbor for using an automated process to facilitate user access to uploaded videos; Veoh had no knowledge of infringement since Io never issued infringement notices and none of the identified clips contained Io’s copyright notice; Veoh’s right/ability to control its system (e.g., requirement of user registration, indexing of video files, conducting of spot checks, and the right or ability to terminate user accounts and to remove infringing material, etc.) was not the same as the right or ability to control infringing activity; and, unlike Napster, there was no evidence that Veoh aimed to encourage infringement, failed to police its system to the fullest extent permitted by its architecture or could control what content users could upload before it was uploaded. The court also rejected Io’s suggestion that Veoh be required to either change its operations to prevent infringement from occurring (e.g., pre-screening all incoming videos) or, if that is not possible, reduce and limit its operations to a manageable number of users. According to the court, such suggestion was contrary to the DMCA’s stated goal of facilitating, not squelching, the growth of e-commerce.

In UMG, the court was asked to resolve whether the § 512(c) safe harbor applied to certain functions performed by Veoh’s website software¾namely, automated “chunking” of an uploaded video, automated conversion of an uploaded video into Flash format and the streaming and downloading of an uploaded video. It was undisputed that those functions were all directed toward facilitating access to user-stored content. UMG contended, however, that those functions did not constitute “storage.” Veoh opposed by arguing that § 512(c) was meant to cover more than just storage but also the provision of access. In siding with Veoh, the court rejected UMG’s interpretation as unduly limiting the applicability of § 512(c) and contrary to both the statutory language and the legislative history. According to the court, if only storage was covered by the immunity, while providing access could trigger liability without such immunity, service providers would be deterred from their “basic, vital and salutary function¾namely, providing access to information and material for the public.” The court noted that the Io case also applied § 512(c) to automated functions, which was consistent with a number of other cases finding that the safe harbor limits liability for activities involved in facilitating access to user-stored material.

Practice Note: While high-profile litigation like Viacom v. YouTube makes headlines, decisions in lower-profile cases like Io and UMG provide useful and practical guidance regarding appropriate policing efforts that website proprietors who host user-generated content should undertake in order to avail themselves of the safe harbor protection of the DMCA. Conversely, for content providers, these decisions help identify the potentially weak or unpersuasive arguments when challenging a website’s eligibility for DMCA safe harbor protection.

**WEB ONLY**
Copyright / U.S. Government

Government Bullet-Proof from Copyright Claim by Prison Inmates
Contact Paul Devinsky

In one of the first decisions of 2009, the U.S. Court of Appeals for the Federal Circuit affirmed a ruling of the U.S. Court of Federal Claims that a federal prisoner could not sue the U.S. government for copyright infringement. In doing so, the Federal Circuit held that 28 U.S.C. § 1498(b), the statute governing copyright infringement suits against the federal government, does not permit such suits by prisoners in the “employment or service” of the U.S. government. Walton v. United States, No. 2008-5057 (Fed. Cir., Jan. 8, 2009) (Friedman, J.).

While an inmate at Leavenworth prison, Robert James Walton worked for Federal Prison Industries, Inc., a government-owned company, designing and producing desk-blotter calendars. In 2001, Walton, acting pro se, filed a copyright infringement suit against the federal government. The suit was initiated at the district court level, but was subsequently transferred to the Court of Federal Claims. The government moved to dismiss the suit on the basis that Walton could not maintain the suit without a copyright registration. After registering his copyright and securing counsel, Walton filed an amended complaint. Subsequently the Court of Federal Claims dismissed Walton’s complaint for lack of jurisdiction, holding that § 1498(b) does not authorize such suits. Walton appealed.

Section 1498(b) provides that a “copyright infringement suit cannot be maintained against the United States, if the copyrighted work was prepared (1) while in the ‘employment or service’ of the United States and (2)(a) as part of the official functions of the employee or (b) in whose preparation government ‘time, material[s], or facilities’ were used.” Because it was undisputed that Walton used “government time, material[s], or facilities” in preparing his calendar, the critical issue before the Court was whether Walton’s calendar was prepared while he was in the “employment or service” of the federal government.

On appeal, Walton argued that the statutory bar does not apply since it is well-settled that prisoners are not “employees” of the United States. Walton further argued that the terms “employment” and “service” are synonymous and thus, if Walton’s calendar was not prepared while in the “employment” of the federal government, it was also not prepared while in the “service” of the United States. The Federal Circuit disagreed. Relying upon the basic tenets of statutory construction, the Court concluded that Congress intended the two terms to have “different, although related, meanings.” Though the Court declined to define the precise limits of the statutory term “service,” it nevertheless found that Walton’s relationship with the federal government constituted a service relationship. Because §1498(b) does not confer a right of action on copyright owners like Walton who use the federal government’s time, material or facilities to prepare a copyrighted work, the Federal Circuit concluded that the Court of Federal Claims correctly dismissed the complaint for lack of jurisdiction.

Trade Secret / Preemption

State Trade Secret Claims Not Preempted by Federal Patent Law
By David A. Kays

Rejecting the argument that state trade secret and breach of contract claims were pre-empted by federal patent law, the U.S. Court of Appeals for the Tenth Circuit upheld the district court’s jury verdict for the plaintiff and $20 million award of damages for unjust enrichment and breach of contract. Russo v. Ballard Med. Prods., Case Nos. 07-4090, -4102 (10th Cir., Dec. 18, 2008) (Gorsuch, J.).

Ballard Medical Products sought the help of Ronald Russo, an independent medical device inventor, to assist in designing improvements to its TrachCare 24 catheter, a closed-suction catheter designed to remove debris from ventilator tubes without having to disconnect patients from the ventilators that provide them with oxygen. After executing a confidential disclosure agreement (CDA), Russo presented design drawings and a prototype for several improvements, but negotiations over licensing the improvements failed. Ballard subsequently used Russo’s designs to secure two patents and bring its new product, TrachCare 72, to market.

Russo brought two claims against Ballard: misappropriation of trade secrets and breach of contract, i.e., the CDA. The jury returned a verdict for Russo and awarded him $17 million in unjust enrichment damages for the trade secret misappropriation and $3 million in damages for breach of contract. Ballard appealed the verdict partly on the grounds that, although Russo’s claims did not arise from or directly implicate federal patent law, the case was “irreconcilable” with federal patent law and so was preempted by it. Ballard claimed that Russo presented himself as the “true inventor” of the two Ballard patents and the TrachCare 72 product and any question of inventorship must be established according to the standards of federal patent law.

The Tenth Circuit reviewed the doctrine of federal patent law preemption as enunciated in Kewanee Oil v. Bicron, and Bonito Boats v. Thunder Craft Boats. The Court observed that inventors are presented with a critical choice—to disclose their inventions to the public or to keep their inventions secret and hope no one else reaches the same result. Inventors who disclose their discoveries deserve a limited monopoly under federal patent law because they are “promot[ing] the Progress of Science and useful Arts.” Inventors who choose to keep their discoveries secret may still rely on state trade secret laws to protect their rights, so long as those state laws do not impede the scientific and technological progress of other inventors and thereby conflict with the essential goal of federal patent law.

In this case, the Court found that Russo did not seek to be proclaimed the inventor of the TrachCare 72, nor did he assert any of the rights associated with patent protection, e.g., the right to exclude others from practicing his invention. Rather, Russo simply followed the traditional trade secret course by proving that he had disclosed a valid trade secret under an agreement that precluded Ballard from using it without his consent, that Ballard had violated that agreement and that Ballard’s conduct had caused him harm. Russo pointed to Ballard’s patents, not in an attempt to be declared the true inventor, but only as evidence of Ballard’s misappropriation. Because Russo did not claim patent-like rights, the Tenth Circuit concluded that federal patent law was not implicated and there was no preemption.

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IP Update, Vol. 12, No. 1, January 2009

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