Exhaustion and Implied License Are Very Different Things
By Paul Devinsky
Continuing a string of reversals for the U.S. Court of Appeals for the Federal Circuit (as well as a trend toward limiting the rights of patent holders), Supreme Court of the United States issued its unanimous opinion that the doctrine of patent exhaustion applies to method patents (as well as apparatus patents) and that exhaustion occurs when there is a sale of a component that “substantially embodies” or “essentially embodies” the patent(s) in question and that is made under license. Quanta Computer, Inc. v. LG Electronics, Inc., Case No. 06-937 (Supr. Ct., June 9, 2008) (Thomas, J.) (9-0 decision)
Quanta was one of several defendants in the courts below. The case arose after these defendants had purchased microprocessors and chipsets from Intel for installation in their computers. Intel held a license from the plaintiff LG Electronics (LGE) covering LGE’s portfolio of patents on computer systems and components. Under the license, Intel was authorized to sell components to the defendants. However, pursuant to a separate agreement, Intel was also obligated to notify defendants that customers were not authorized to combine the components with non-Intel products. Intel complied. LGE subsequently brought suit against the defendants asserting that the combination of Intel’s microprocessors and chipsets with other computer components (such as memory and data buses) infringed LGE’s patents covering the combination and its method of use. LGE did not assert its patents covering the chipsets themselves.
The district court, relying on the 1942 Supreme Court Univis case, found (on summary judgment) that LGE’s rights in its computer system patent claims were exhausted by the license to Intel. On appeal, the Federal Circuit reversed, finding no implied license in view of Intel’s express disclaimer and no exhaustion because there was no unconditional sale.
The Supreme Court granted certiorari on the following issue:
“Whether the Federal Circuit erred by holding, in conflict with decisions of this Court and other courts of appeals, that respondent’s patent rights were not exhausted by its license agreement with Intel Corporation, and Intel’s subsequent sale of the product under the license to petitioners.”
Echoing the district court’s analysis, Justice Thomas explained that the exhaustion analysis is grounded in whether the thing licensed and subsequently sold embodies “essential features” of the patented device and was without utility until it became a part of a finished product. In other words, exhaustion can occur even where the thing sold does not practice the entire claimed combination. Quoting Univis, the Supreme Court observed:
“[W]here one has sold an uncompleted article which because it embodies essential features of his patented invention is within the protection of his patent, and has destined the article to be finished by the purchaser in conformity to the patent, he has sold his invention so far as it is or may be embodied in that particular article.”
The Supreme Court then expanded the test for exhaustion from “essential features” to “sufficiently embodies,” stating “the [Univis] Court concluded that the traditional bar on patent restrictions following the sale of an item applies when the item sufficiently embodies the patent—even if it does not completely practice the patent—such that its only and intended use is to be finished under the terms of the patent.”
Analogizing the Intel chipsets to the lens blanks at issue in Univis, the Supreme Court found no “reasonable use” for the Intel products other than incorporating them into a computer, i.e., a system including data buses and memory (as per the LGE patent claims). The Supreme Court also found the Intel chipsets embodied the “essential features” of the patented invention.
As explained in a footnote, the issue is not (as argued by LGE) whether a purchaser of chipsets from Intel could have avoided creating a direct infringement by only selling computers outside the United States or disabling the inventive features of the Intel chipsets. Rather the issue is whether the Intel chipsets are capable of use only by practicing the patent—regardless of whether that use is infringing. As explained by Justice Thomas, disabling a feature is irrelevant to the analysis as a disabled feature would have no use.
Here, as in Univis, the Supreme Court found that the incomplete article (the chipset) substantially embodies the patent because the only step necessary to practice the patent is the application of common processes or the addition of standard parts. The Supreme Court noted that “everything inventive about each patent is embodied in the Intel products.”
Method Claims Can Be Exhausted
While recognizing that a patented method is not sold in the same way as an article or device, Justice Thomas explained a patented method “nonetheless may be ‘embodied’ in a product, the sale of which exhausts patent rights. Our precedents do not differentiate transactions involving embodiments of patented methods or processes from those involving patented apparatuses or materials.”
Disagreeing with the Federal Circuit, the Supreme Court stated that “eliminating exhaustion for method patents would seriously undermine the exhaustion doctrine. Patentees seeking to avoid patent exhaustion could simply draft their patent claims to describe a method rather than an apparatus,” noting “the danger of allowing such an end-run around exhaustion.”
Exhaustion vs. Implied License
Rejecting LGE’s argument that “Intel could not convey to Quanta what both knew it was not authorized to sell, i.e., the right to practice the patents with non-Intel parts,” Justice Thomas looked to other aspects of the Intel-LGE transaction (primarily the broad granting clause in the license) and concluded that Intel’s authority to sell its products was not conditioned by the patent license on whether Intel’s customers abided by the notice given to them. The Supreme Court explained that LGE’s notice argument confused exhaustion and implied license, the former turning only on Intel’s own license to sell products, which was not restricted. Thus, Quanta’s right to practice the patent was based on exhaustion of LGE’s patent rights, not on implied license rights. Justice Thomas also made short work of LGE’s “post sale restrictions” argument, essentially finding that once exhaustion occurred under the “substantially embodies” test, the patent owner has no right to impose further restrictions.
Authorized Use or Sale
Because the LGE/Intel license contained no restrictions on Intel’s right to sell the products at issue, the Supreme Court rejected LGE’s reliance on the Supreme Court’s 1938 General Talking Pictures case.
When Claims Should Be Construed in Light of Disclosed Embodiments
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Two recent claim construction decisions by separate panels of the U.S. Court of Appeals for the Federal Circuit suggest that non-asserted or cancelled claims should be examined to determine if the preferred embodiment is found there and, if it is, asserted claims need not be construed to include preferred embodiments. PSN Illinois, LLC v. Ivoclar Vivadent, Inc., No. 07-1512 (Fed. Cir., May 6, 2008) (Michel, J.) and Helmsderfer v. Bobrick Washroom Equipment, Inc., Case No. 08-1027 (Fed. Cir., June 4, 2008) (Moore, J.).
In PSN, the Federal Circuit panel unanimously concluded that the district court construed a claim term too narrowly, but affirmed the finding of non-infringement nonetheless. PSN alleged that Ivoclar infringed its patent directed to a method of fabricating porcelain veneers for teeth using an investment casting process. The asserted claim recited a limitation regarding the veneer being “ready for mounting” following the removal of a model of a patient’s tooth made from an impression of the patient’s mouth that the veneer was formed upon. The district court construed “ready for mounting” as “leaving the veneer restoration ready to be fitted to and cemented on a patient’s tooth for which it was custom-made.” The district court determined that Ivoclar did not infringe, as the Ivoclar veneer required substantial work after it was removed from the investment material that the veneer is formed upon. PSN appealed.
The PSN panel commenced its analysis by agreeing with PSN that the district court construed “ready for mounting” too narrowly by excluding finishing activities. The Court noted that the claim language did not provide guidance to the meaning of “ready for mounting” and that the specification did not specifically define the term. However, the Federal Circuit noted that the specification did teach in the summary of invention that some finishing steps may be performed after the veneer is removed from the investment material. The district court had focused on a preferred embodiment that described finishing steps occurring prior to removing the veneer from the investment material. The Court determined that the term should be construed in a manner that includes both the description in the summary of the invention, as well as the specific embodiment. Thus, “ready for mounting” should be construed to allow some finishing after removing the veneer from the investment material.
The Court noted that claims do not need to be construed in a manner so that all claims cover all embodiments, but a court needs to be mindful that “disclosed embodiments may be within the scope of other allowed but unasserted claims.” The Court further pointed out that, during prosecution, an applicant may have canceled pending claims, but not amended the specification to delete disclosure relevant only to the canceled claims. In such circumstances, a disclosed embodiment may not be within the scope of the asserted claims. The Federal Circuit then applied the properly constructed claim term to the accused process and determined that Ivoclar’s process involved more than mere finishing after removing the investment material and is not ready for mounting. Consequently, it did not infringe PSN’s asserted claim.
In the second decision, Helmsderfer, a different panel unanimously affirmed the claim construction in a patent infringement action. Helmsderfer alleged that Bobrick Washroom Equipment infringed two claims of its patent directed to a baby diaper-changing station for use in a public restroom. The asserted claims depended from an independent claim that recited, in part, “the platform top surface is partially hidden from view.” At a Markman hearing the district court construed “partially hidden from view” to mean “hidden from view to some extent, but not totally hidden from view.” Helmsderfer appealed, arguing that the term should have been construed to mean “at least some of the top surface is blocked from being seen,” a construction that would include a top surface that is completely hidden from view.
The Helmsderfer panel commenced its analysis by noting that Helmsderfer did not argue that “partially hidden” had been given a definition that departs from the ordinary meaning of the term, but that the plain meaning of “partially hidden” also included fully hidden. The Court noted that the patent never utilized the term “partially hidden,” other than in the base claim, but that the terms “generally” and “at least” appeared elsewhere, and pointed to Federal Circuit precedent indicating that different claim terms are presumed to have different meanings. The Court noted that nothing in this case rebutted this presumption and that if Helmsderfer had intended such a meaning for “partially hidden,” it should have used such a term.
Next, the panel noted that a court may look to extrinsic evidence to determine the meaning of a claim term that does not contradict the intrinsic evidence. The Helmsderfer patent did not give any definition of “partially,” thus it was not improper for the district court to look to dictionary definitions of “partially” while arriving at the plain meaning of a claim term.
Finally, the Federal Circuit panel addressed Helmsderfer’s argument that the district court’s claim construction excluded the preferred embodiment and all illustrated embodiments from the asserted claims. The Court noted a claim should not be construed to exclude disclosed embodiments when the term has multiple ordinary meanings consistent with the intrinsic record. However, the Court added that, although the construction given to “partially hidden from view” in the asserted claims does not include the disclosed embodiments, this does not mean that the disclosed embodiments are excluded from the scope of other claims in the patent. The Court noted that none of the other independent claims contained the term “partially hidden from view,” thus it is possible that non-asserted claims encompass the disclosed embodiments. “It is often the case that different claims are directed to and cover different disclosed embodiments. The patentee chooses the language and accordingly the scope of his claims.”
Practice Note: The decisions in PSN and Helmsderfer suggest that the existence of unasserted claims or claims that were canceled during prosecution may preclude application of the claim construction rule of avoiding a claim interpretation that excludes the preferred embodiment from the scope of the invention.
Don’t Even Think of It—or DJ Will Getcha
By Paul Devinsky
The U.S. Court of Appeals for the Federal Circuit affirmed that taking “concrete steps” in preparation to engage in infringing activities is sufficient to create declaratory judgment jurisdiction. Cat Tech LLC v. TubeMaster, Inc., Case No. 07-1443 (Fed. Cir., May 28, 2008) (Mayer, J).
The patent in question describes a method for using loading devices to place catalyst particles into multi-tube chemical reactors. Multi-tube reactors typically contain thousands of long vertical tubes that are held together at either end by a perforated plate called a tube sheet. The claimed method uses a plurality of plates that are positioned to cover the upper tube sheet of a chemical reactor. Catalyst is poured over these plates and then swept into the reactor tubes.
TubeMaster developed a method of putting catalyst into reactor tubes using loading devices known as Outage Loading Equipment (OLE’™) TubeMaster designed four different configurations for its OLE’™ devices and generated AutoCAD® drawings for each of its configurations. Because TubeMaster’s OLE’™ loading devices are customized based upon the dimensions of each customer’s reactor, it did not manufacture any devices as it was awaiting an order from a customer specifying the appropriate dimensions.
Cat Tech brought suit against TubeMaster, seeking a declaratory judgment of infringement of its patent by TubeMaster’s OLE’™ loading devices. TubeMaster counterclaimed, seeking a declaration that its devices did not infringe the patent and that the patent was invalid and unenforceable. The district court concluded that a “live controversy” existed as to certain of the configurations that TubeMaster was prepared to produce as soon as it received an order with appropriate dimensions and ultimately held those configurations to be non-infringing (on TubeMasters motion for summary judgment). As to another TubeMaster configuration that had been produced, the Court found no infringement because the configuration used spacing that, contrary to the patent claims, allowed whole catalyst particles to fall through. Cat Tech appealed.
The Federal Circuit first considered whether there was an actual controversy to support declaratory judgment jurisdiction. The Court, noting that there was “no facile, all-purpose standard to police the line between declaratory judgment actions which satisfy the case or controversy requirement and those that do not” explained that “the analysis must be calibrated to the particular facts of each case, with the fundamental inquiry being whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of declaratory judgment.”
This case, unlike the string of post-MedImmune cases the Federal Circuit has considered (all of which related to the old “reasonable apprehension” prong of the Federal Circuits’ pre-MedImmune declaratory jurisprudence), is the first to explore the so-called “second prong of the declaratory judgment analysis, i.e., whether there had been “meaningful preparation” to conduct potentially infringing activity.
After concluding that even though “MedImmune articulated a more lenient legal standard for the availability of declaratory judgment relief in patent cases,” still, if “a declaratory judgment plaintiff has not taken significant, concrete steps to conduct infringing activity, the dispute is neither immediate nor real and the requirements for justiciability have not been met.”
The Court explained that although a party need not have engaged in the actual manufacture or sale of a potentially infringing product to justify a request for declaratory judgment of non-infringement, “there must be a showing of meaningful preparation for making or using that product.” After analyzing cases in which the necessary immediacy was found lacking, the Court distinguished the facts here and concluded that TubeMaster had taken “significant, concrete steps to conduct loading activity” with the accused configurations, developing two basic loading device designs, four loading device configurations and drawings for each configuration. Noting that “TubeMaster’s loading device designs are customized based upon the dimensions of each customer’s reactor, it can take no further steps toward manufacturing its loading devices until it receives an order from a customer with the appropriate dimensions” and that TubeMaster had declared that it was “prepared to produce loading devices using the [accused] configurations … as soon as it receives an order with the appropriate dimensions,” the Court found that the “[c]onstitutionally mandated immediacy requirements have been satisfied.”
Explaining that “the reality requirement relates to the extent to which the technology in question is substantially fixed as opposed to fluid and indeterminate at the time declaratory relief is sought. The less it is fixed the greater the chance that the court’s judgment will be purely advisory.” The Court concluded that TubeMaster’s technology is substantially fixed and that its loading device designs are designed “to cover virtually all of the reactor configurations that might be encountered at customers’ facilities.”
Cat Tech argued that there is no “live controversy” because TubeMaster has made “no disclosure of those configurations to customers or potential customers.” The Court noted however, that under MedImmune “all of the circumstances must be considered when making a justiciability determination” and that TubeMaster’s failure to prepare items such as sales literature “is not an indispensable prerequisite” to jurisdiction.
Finally, even where the immediacy and reality prerequisites for declaratory judgment relief have been met, the Court noted that a district court’s exercise of its declaratory judgment authority is subject to the Court’s discretion. The Federal Circuit, again citing MedImmune, explained that in exercising that discretion a court should consider whether resolving the case serves the objectives for which the Declaratory Judgment Act was created, “a plaintiff need not bet the farm, or … risk treble damages … before seeking a declaration of its actively contested legal rights.”
Electric Motor Decision Powers Down Solomon Technologies
By Bonnie J. Warren
The U.S. Court of Appeals for the Federal Circuit affirmed the final determination of non-infringement by the U.S. International Trade Commission (ITC) of a patent directed to a hybrid vehicle transmission, but declined to review the ITC’s rulings on validity because “we are not required to address every possible ground on which the Commission’s Order might be sustained.” Solomon Technologies, Inc. v. International Trade Commission, Case No. 07-1391 (Fed. Cir., May 7, 2008) (Bryson, J.).
Solomon filed a complaint with the ITC under section 337 of the Tariff Act of 1930, alleging that Toyota imported and sold hybrid vehicles that infringed certain claims of Solomon’s patent. Following an investigation, the presiding administrative law judge (ALJ) found no violation. The ALJ based that ruling on his determination on the findings that the accused devices did not infringe the patent, the patent was invalid for lack of enablement and the complainant did not establish the requisite domestic industry. The Commission reviewed in part the ALJ’s determination and took no position on the ALJ’s findings concerning the economic prong of the statutory domestic industry requirement. In all other respects, the Commission declined to review the ALJ’s determination which thereupon became the final determination of the Commission. Solomon appealed.
On review, the Federal Circuit agreed with the ALJ’s construction of the identified claim terms in all respects with the exception of the construction of the term “continuously variable,” which the Court declined to address. Because the Court could not agree with either party’s proposed construction of the term “continuously variable” limitation, the Court declined to address the ALJ’s ruling that claim 7 is not enabled.
The Court went on to note that it could affirm the Commission’s final determination on the basis of noninfringement without the need to address the Commission’s finding on validity. In so doing, the Federal Circuit reminded us that when a case is before the ITC, invalidity is not a separate claim, as it is when raised as a declaratory judgment claim in district court litigation. Instead, in the context of §337 invalidity is simply one ground for determining whether the importation and sale of allegedly infringing articles “infringe a valid and enforceable United States patent.”
Different Accused Devices Allows Patentees to Engage in Multiple Litigations
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In a recent decision by the U.S. Court of Appeals for the Federal Circuit on application of claim preclusion, a patentee who choose not to add a device to a pending litigation was found to have preserved its right to have a second bite of the apple with regard to another accused device that was not “essentially the same” as the subject of the first trial. Acumed LLC v. Stryker Corp. et al., Case No. 07-1115 (Fed. Cir., May 13, 2008).
Acumed alleged that Stryker’s T2 Proximal Humeral Nail infringed certain patent claims relating to orthopedic surgical equipment. During the discovery period, Acumed ascertained that Stryker had developed, but was not yet marketing, a longer version of the T2 nail. Approximately a year after filing the suit and four months after the close of fact discovery, Stryker began publicly marketing and selling a longer version of the accused T2 nail in the United States. A few months after Stryker began marketing and selling its Long T2 nail, Acumed sought to add the Long T2 nail to the pending litigation. In an effort to avoid facing another infringement claim, Stryker argued that that the Long T2 nail differed from the accused T2 with respect to some of the claim elements and therefore should not be added to the case. The district court presented Acumed with a decision: either include the Long T2 nail as an accused product in the present action and extend the trial date for a year or forego the new patent infringement claim and maintain the present trial date. In an effort to maintain its trial date, Acumed chose to postpone infringement claim against Long T2 nail and proceed to trial only on the (original) T2 nail infringement claim. After a jury determination of willful infringement with respect to the T2 nail, Acumed filed a new action, accusing the Long T2 nail of infringing the same patent claims previously adjudicated. The district court held that because Acumed could have litigated the Long T2 nail in the previous case but chose not to, Acumed was now precluded from asserting another patent infringement claim against the Long T2 nail. Acumed appealed.
The Federal Circuit rejected the “could have litigated” test, reasoning that “claim preclusion does not bar a claim merely because it could have been raised in a prior action between the parties that was resolved by a final judgment on the merits.” Instead, the Federal Circuit applied the “essentially the same” test. Under this test, “[a]ccused devices are ‘essentially the same’ where the differences between them are merely ‘colorable’ or ‘unrelated to the limitation in the claims of the patent.’” The Federal Circuit reasoned that because the district did not compare the accused T2 nail with the new Long T2 nail and because Stryker’s own representations that its Long T2 nail differed from the accused T2 nail, the district court erred in applying claim preclusion to the instant case. The arguments advanced by Stryker in an attempt to stop Acumed from adding the Long T2 nail in the first case essentially ensured that the fight between Acumed and Stryker would continue on to another patent case.
Don’t Hide the Ball—Omission of Experimental Data Leads to Invalidation of Patents
By Eric W. Hagen
A divided U.S. Court of Appeals for the Federal Circuit upheld a district court’s finding of inequitable conduct against a patent owner, invalidating the drug maker’s patents to its top-selling blood-thinner. Aventis Pharma S.A. v. Amphastar Pharmaceuticals, Inc., Case No. 07-1280 (Fed. Cir., May 14, 2008) (Prost, J.; Rader, J., dissenting).
The two patents-in-suit covered Lovenox®, which has generated billions in revenue for Aventis through more than 100 million prescriptions for the anti-blood-clotting drug. During prosecution of one of the patents, an Aventis scientist, Dr. Andre Uzan, advised the U.S Patent and Trademark Office (USPTO) that Lovenox® had a longer half-life than prior art drugs. Dr. Uzan failed to reveal, however, that the half-life studies used different doses than the prior art drugs. In fact, studies comparing the drugs with the same dose showed little difference.
Aventis argued that its scientist informed (or at least intended to inform) the USPTO regarding the different doses or, if the USPTO was not informed, then Dr. Uzan’s failure to disclose the different doses was inadvertent. An earlier appeal had already affirmed the materiality of the omitted dose information. In this appeal, which addressed the issue of deceptive intent, Aventis failed to convince a majority of the Court that the district court committed clear error in finding that Dr. Uzan had intended to deceive the USPTO.
Judge Rader dissented. In his view, the Federal Circuit’s teachings on inequitable conduct provide a more restrictive application of the doctrine. He focused on the Court’s 1988 en banc decision in Kingsdown Medical Consultants Ltd., which he read as “clearly convey[ing] that the inequitable conduct was not a remedy for every mistake, blunder or fault in the patent procurement process.” Inequitable conduct, he wrote, is reserved for “only the most extreme cases of fraud and deception.” According to Judge Rader, Amphastar had failed to meet its lofty burden of clear and convincing evidence.
Practice Note: In the wake of this decision, patent applicants will need to be particularly careful when comparing a claimed invention to the prior art based on experimental data, making sure than any experimental differences are clearly (and timely) stated. On the litigation front, the ruling may embolden defendants to assert inequitable conduct. Aventis was decided almost one year to the day after the Court’s noteworthy ruling in McKesson, which affirmed an inequitable conduct finding based on an applicant’s failure to disclose prior art that had been identified in similar co-pending applications. McKesson and Aventis appear to signal an increasingly expansive view of materiality and intent to deceive.
Parent Company Denied Recovery for Lost Profits of Subsidiary
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The U.S. Court of Appeals for the Federal Circuit affirmed a district court’s grant of summary judgment in the damages phase of 18-year-old litigation, denying recovery for lost profits. Mars, Inc. v. Coin Acceptors, Inc.,Case No. 07-1409,-1436 (Fed. Cir., June 2, 2008) (Linn, J.).
The underlying suit, originally brought by Mars in January 1990, alleged that certain products of Coin Acceptors infringed Mars’ patents covering technology used in vending machines to authenticate coins. Although the district court found infringement and ordered Coin Acceptors to pay a reasonable royalty of 7 percent for the period of 1996 through 2003 (when the last patent in issue expired), it refused to allow Mars to recover under a lost-profits theory and held that Mars’ former subsidiary—a non-exclusive licensee—Mars Electronics International, Inc. (MEI) lacked standing to sue for pre-1996 infringement.
On appeal, the Federal Circuit addressed four issues: whether Mars was entitled to lost profits; whether MEI had standing to recover damages incurred prior to 1996; whether Mars had standing to recover damages incurred during 1996 to 2003; whether the district court erred by imposing a 7 percent royalty rate.
On the issue of lost profits, Mars claimed that by virtue of the parent-subsidiary relationship (designed for tax purposes) in which MEI paid Mars pursuant to a “per use” license, all of MEI’s lost profits (by virtue of 100 percent ownership and their consolidated financial statement) were “inherently” lost profits of Mars. The Federal Circuit, noting that Mars does not make or sell any of the patented machines and that MEI’s license requires it to pay Mars based on a straight per use basis rather than some measure of profits, found that MEI’s profits did not flow inexorably to Mars. The Court, therefore, denied Mars claim for recovery under a lost-profits theory.
As for standing on the part of MEI to claim lost profits on its own right, the Federal Circuit noted the patent law axiom that only a patent owner or an exclusive licensee can have constitutional standing to bring an infringement suit; a non-exclusive licensee does not. The Federal Circuit further observed that although MEI transferred the patents-in-suit to Mars (even if the patent owner is joined) in 1996, another Mars subsidiary, MEI-UK, continued to hold a worldwide license to practice the inventions. Therefore, because MEI was not an exclusive licensee, it lacked constitutional standing to sue for the pre-1996 period.
With regard to the 1996-2003 time frame, the issue was whether, under the 2006 confirmation agreement (which Mars signed after the district court entered final judgment), its ownership of the patent in suit was restored and thus cured any standing defect. The confirmation agreement provided that Mars and MEI “acknowledge[d] that MARS owns and retains the right to sue for past infringement” of the patents and that, “to the extent MEI may have or claim any rights in or to any past infringement […], MEI does hereby irrevocably assign all such rights to Mars.” Looking at this language, the Court held that without an express transfer of ownership of the patents, the mere acknowledgement of or transference of the right to sue for past damages does not convey standing as Mars was not the owner of the patents at the time of the alleged infringement. The Court, therefore, vacated the damages award for infringement from 1996 to 2003.
Finally, the Federal Circuit upheld the 7 percent reasonable royalty rate despite it being higher than the cost of non-infringing alternatives. The Court stated that reasonable royalty damages are not capped at the cost of implementing the cheapest available, acceptable, non-infringing alternative. Rather, the law provides that an infringer may be liable for damages, including reasonable royalty damages that exceed the amount that the infringer could have paid to avoid infringement.
Claim Construction Is a Product, Not a Process
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In a recent decision construing claims to virtual memory space networking systems, the U.S. Court of Appeals for the Federal Circuit affirmed a pre-Phillips district court claim construction, reminding us that construing patent claims is not about the process, but about the result. Mangosoft, Inc. v. Oracle Corp. , Case No. 07-1250 (Fed. Cir., May 14, 2008) (Linn, C. J.).
Mangosoft is the owner of a patent covering computer networking systems that, in contrast to traditional networks with central data repositories, decentralize memory by storing data in a network of individual computers (or nodes) to form a “virtual memory space.” Mangosoft sued Oracle, accusing its Real Applications Clusters (RAC) software of infringement. The sole point of contention was the meaning of the term “local” in the patent claims. Relying primarily on a technical dictionary, the district court held that the term “local” meant memory “directly attached to a single computer’s processor.” It rejected Mangosoft’s proposed construction, that the term “simply requires a computer memory device that is somehow ‘linked’ to a computer (whether directly or indirectly).” Following claim construction, the district court on summary judgment held that Oracle’s software did not infringe. Mangosoft appealed.
Mangosoft’s principal argument on appeal was that the district court had erred by importing the “directly” attached requirement from a technical dictionary definition of “local.” Mangosoft claimed that the district court wrongly applied the outmoded claim construction framework of Texas Digital, which taught that the claim construction process should begin and end with dictionary definitions unless those definitions were clearly inconsistent with the patent’s use of the terms. In its 2005 en banc Phillips decision, the Federal Circuit essentially abrogated that approach, instead instructing courts that the claims themselves, the patent specification and the prosecution history (collectively the “intrinsic evidence”) are the most reliable sources for determining claim scope. Since the district court’s claim construction occurred prior to Phillips and used a framework that is now widely regarded to be obsolete, Mangosoft argued that the district court’s construction must be reversed.
The Federal Circuit disagreed. First, it held that while the district court had apparently relied on a dictionary, “even Phillips recognized that reference to such sources is not prohibited so long as the ultimate construction given to the claims in question is grounded in the intrinsic evidence and not based upon definitions considered in the abstract.” Second, the Court held “we review judgments, not opinions, and need not focus on the methodology used by the district court.” The Court explained that “our de novo review means that we need not decide whether the logic or subsidiary definitions used by the district court to reach the correct construction were sound . … We review only the district court’s finished product, not its process.” Finally, conducting its own analysis, the Court held that the construction was supported by the intrinsic record (in addition to the dictionary). As the Court noted, “when considered in the context of and not divorced from the intrinsic evidence, there is nothing improper about referencing this [dictionary] definition in correctly construing the claim.”
Practice Note: While case law sometimes depicts claim construction as a process, before challenging a claim construction, practitioners would be well advised to look beyond the hierarchies and canons employed and carefully consider the objective of the Markman/Phillips process, which Phillips described as defining what the patentee actually invented.
Maintaining Even Equitable Patent Rights Requires Effort
By Amanda E. Koenig
The U.S. Court of Appeals for the Federal Circuit recently solidified its 1995 ruling in Ray v. Lehman and rejected the notion that the U.S. Patent and Trademark Office (USPTO) has a duty to question a patent’s ownership when it upheld the USPTO Director’s denial of the inventor’s request to reinstate his patent after failure to pay the maintenance fee. Burandt v. Dudas, Case No. 07-1504 (Fed. Cir., June 10, 2008) (Newman, J.)
Inventor and plaintiff-appellant Corliss Burandt assigned a patent application to his employer Investment Rarities, Inc. (IRI). IRI thereby became the legal title owner of the subsequently issued patent. Soon thereafter, Burandt attempted to regain legal title to the patent from IRI. IRI, however, rebuffed Burandt. Subsequent negotiations proved unsuccessful, and Burandt abandoned his efforts to wrest legal title to the patent from IRI. Some four years passed, and IRI failed to pay the first maintenance fee, resulting in the patent’s expiration on October 9, 1994.
Meanwhile, the inventor had fallen on hard times. According to his psychiatrist, Burandt became mentally disabled at some point prior to 1992. In 2001, Burandt learned that the patent had expired. He regained legal title from IRI in 2002 and filed a petition under 37 C.F.R. § 1.378(b) “for acceptance of a delayed fee payment.” Under 35 U.S.C. § 41, the USPTO Director “may accept the payment of any maintenance fee… after the six month [grace] period if the delay is shown to the satisfaction of the Director to have been unavoidable.” The USPTO denied Burandt’s petition. Burandt filed suit against the Director of the USPTO under the Administrative Procedure Act (APA), “alleging that the [USPTO] Director’s denial of his request for reinstatement was arbitrary and capricious and an abuse of discretion.” The district court granted summary judgment in favor of the Director. Burandt appealed.
The Federal Circuit’s decision was heavily based on Ray, wherein it held “that in determining whether a delay in paying a maintenance fee was unavoidable, one looks to whether the party responsible for payment of the maintenance fee exercised the due care of a reasonably prudent person.” Here, IRI, as the legal owner of the patent during the relevant time, was “the party responsible for payment of the maintenance fee.” Moreover, since the record was clear that IRI’s failure to pay the maintenance fee was intentional, the delay in payment was clearly avoidable. The Court also looked to whether Burandt, as the party with only equitable rights in the patent at the relevant time “exercised the due care of a reasonably prudent person” such that they could attain the status of “the party responsible for the payment of the maintenance fee.” The Court answered this inquiry in the negative, pointing out that Burandt failed to make “repeated inquiries about the status of his patent” (even though he knew IRI had allowed three of his other patents to expire). Moreover, there was no evidence that IRI made misrepresentations to Burandt about the status of his patent.
The Federal Circuit also rejected the notion that the USPTO has a duty to question ownership, whether legal or equitable: “The Director is entitled to rely on the representations of ownership by the parties and need not engage in a separate analysis to determine title ownership. … The Director is entitled to rely on the record and does not have to conduct an equitable analysis in order to determine who must pay the maintenance fee.”
Practice Note: This case demonstrates the burden placed on parties having any rights—legal or equitable—in patents to not only proactively pursue and protect those rights, but also to ensure that the public record is accurate. Equitable owners should not trust that legal owners will always maintain shared patents. Legal owners should avoid the taint of dishonesty to enter their dealings with equitable owners, lest the equitable owners thereby regain certain legal rights to shared patents.
Application Data Sheets—Substance over Form Carries the Day
By Leigh J. Martinson
The United States Court of Appeals for the Federal Circuit confirmed the practice of claiming the benefit of an earlier filed application using solely an application data sheet. E.I. du Pont de Nemours v. MacDermid Printing Solutions, L.L.C., Case No. 07-1568 (Fed. Cir., May 14, 2008) (Michel, J.).
On February 27, 2002, when it filed the application for the patent in question, E.I. du Pont de Nemours (DuPont) filed an application data sheet that stated: “[t]his application is a non-provisional of provisional application 60/273669 2001-03-06 WHICH IS PENDING.” The application itself did not include a “related applications” section or the like. Thus, the only claim for the benefit of the provisional application was found in the application data sheet. The priority claim did not appear on the face of the published application or the issued patent. DuPont requested and was granted a Certificate of Correction to correct this error on the part of the U.S. Patent and Trademark Office (USPTO).
Later, when DuPont sued MacDermid for patent infringement, one of the defenses asserted by MacDermid was public use or sale of the invention more than one year before the critical data which was alleged by MacDermid to be February 27, 2001, one year prior to the non-provisional application filing date. In connection with briefing and a hearing on DuPont’s motion for preliminary injunction, DuPont’s trial counsel failed to raise the issue that the critical date was March 6, 2000, one year prior to the provisional application filing date. Two days after the hearing, DuPont submitted a letter to the court for the first time asserting March 6, 2000 as the priority date.
In response, MacDermid argued that the non-provisional application was not entitled to the benefit of the provisional application because DuPont did not use the “proper language” in claiming priority to the provisional application. MacDermid further argued that the filing receipt, published application and issued patent did not reference the provisional application, showing that the USPTO did not recognize priority to the provisional application.
DuPont was unable to convince the court that MacDermid’s § 102(b) defense was without substantial merit and its request for a preliminary injunction was denied on that basis. DuPont appealed, the sole issue being whether the district court correctly held that MacDermid raised a substantial question of validity based on the uncertainty as to whether the non-provisional application was entitled to claim priority to the provisional application to the Federal Circuit.
The Federal Circuit reversed, finding that the court had abused its discretion in denying DuPont’s preliminary injunction motion, noting that in light of the undisputed facts contained in the prosecution history, the non-provisional application was entitled to the filing date of the provisional application as a matter of law and that the reference to the provisional application in the application data sheet would lead a reasonable person to conclude that the applicant was claiming priority to an earlier provisional application.
Creating Jurisdiction for the Court of Appeals for the Federal at Anytime
By Leigh J. Martinson
The U.S. Court of Appeals for the First Circuit confirmed the exclusivity of the jurisdiction of the U.S. Court of Appeals for the Federal Circuit for all patent matters, regardless of when a patent issue first becomes part of the case. CytoLogix Corporation v. Ventana Medical Systems, Inc., Case No. 07-2629 (1st. Cir., Jan. 17, 2008) (per curiam).
CytoLogix filed two separate actions against Ventana. One of the actions was a patent infringement claim; the other was an antitrust/misappropriation action. After two trials, both of which included claims from the other action, the court entered a final judgment on all the claims. There was never a formal consolidation of the cases until after the conclusion of the trials. Specifically, it was not until after the final judgment that the court entered an order stating that the actions were consolidated, nunc pro tunc, as of the commencement of the first trial. After the conclusion of the district court actions, CytoLogix filed two identical notices of appeal: one in the First Circuit and one in the Federal Circuit.
Ventana moved to dismiss the appeal in the First Circuit for lack of jurisdiction. CytoLogix opposed the dismissal, but conceded that the patent claim should have been transferred to the Federal Circuit. CytoLogix asked in the alternative that the entire appeal be transferred to the Federal Circuit instead of being dismissed.
The First Circuit dismissed the appeal filed in their court, but stated normally they would have transferred the matter to the Federal Circuit if there was not a co-filed appeal in that jurisdiction. The Court reasoned that once the two cases were consolidated, even though the consolidation occurred after a final judgment was entered, jurisdiction of the entire consolidated case was based at least in part on the patent laws. In reaching it’s conclusion to relinquish jurisdiction, the First Circuit relied on 28 U.S.C. § 1295(a), which states that the Federal Circuit has exclusive jurisdiction of an appeal if the jurisdiction of district court was based, in whole or in part, on 28 U.S.C. § 1338.
Beware of Undefined Claim Elements
By Shawnna M. Yashar
Addressing the issue of claim elements that are undefined in the specification, the U.S. Court of Appeals for the Federal Circuit relied upon Phillips to support its holding that a “remote interface,” as used in the patent, excludes consumer-owned personal computers. Decisioning.com, Inc. v. Federated Department Stores, Inc., Case No. 07-1277 (Fed. Cir., May 7, 2008) (per curiam).
Decisioning’s patent covers a system that processes loan or credit card applications automatically to give approvals within minutes. Claim 1 of the patent claims a system comprising a “remote interface,” but the term “remote interface was defined nowhere in the specification. The specification did contain, however, a preferred embodiment of the invention, which consisted of a system to automatically process loans using computer equipment housed in a kiosk. The specification taught that all loan processing was done “without human interaction.” During prosecution, all embodiments that involved human assistance were deleted, leaving only the kiosk embodiment. Decisioning contended that claim 1 should not be limited to kiosks, but instead a remote interface should encompass other forms of access such as Internet access from personal computers. The district court nevertheless held the term to be limited to kiosk-based terminals. Decisioning appealed.
The Federal Circuit affirmed finding that the term “kiosk” was not only a description of the preferred embodiment, but it was the description of the actual invention. Consequently, the Court read claim 1 in light of the specification and held that a “remote interface” did not include consumer-owned personal computers. Interestingly, the prosecution history showed that the term “kiosk” was originally used in claim 1 instead of “remote interface.” The claim was later amended and all references to the term “kiosk” were deleted. The remarks accompanying the amendment stated that the kiosk element was deleted because it was not required for performing the method. The Court found this to mean that the remote interface did not need to be enclosed within a kiosk and rejected Decisioning’s assertion that the amendment actually broadened the scope of the claim. The majority acknowledged that in some situations there was a “fine line” between reading a claim in light of a specification and reading a limitation from the specification into the claim but determined that the disclosed senses of “remote interface” in the specification corresponded the use of kiosk in the specification.
In dissent, Judge Linn argued that the term “remote interface” should not be limited to the preferred embodiment of kiosks. He found no support for such a limitation in the prosecution history or the specification or disavowal of non-kiosk based terminals. Furthermore, Judge Linn argued that the majority’s construction “violates fundamental tenets of claim construction.” According to Judge Linn, because the term “remote interface” is not defined in the prosecution history or in the specification, it should be given its plain and ordinary meaning. Consequently, the remote interface element should include consumer-owned personal computers.
JMOL Requires Notice Where Factual Issues Present
Please contact Paul Devinsky
The U.S. Court of Appeals for the Federal Circuit found that it was procedurally improper for a district court to rule as a matter of law that the moving party did not literally infringe where the non-moving party was neither fully heard on the non-infringement issue nor provided with a 10-day notice of the non-infringement ruling, and further declined to find this error harmless in view of an evidentiary dispute. Southwestern Bell Telephone Co. v. Collins, Case No. 07-1577 (Fed. Cir., May 27, 2008) (Moore, J.).
Southwestern Bell filed for declaratory judgment of non-infringement and invalidity of Collins’ patents. In turn, Collins counterclaimed for infringement, damages and injunctive relief. The district court overwhelmingly ruled in Southwestern Bell’s favor, finding invalidity for indefiniteness, improper re-examination, no literal infringement of a “control store” claim term, no literal infringement of “randomly receive” claim term and that evidence of equivalents was barred by prosecution history estoppel. At the end of a pre-trial hearing, the district court issued its claim construction on the “randomly receive” limitation and asked the parties what issues remained for the jury. Three days later, the district court again asked the parties what issues remained outstanding and requested that the parties submit briefing by the end of that same day on the effect of prosecution history estoppel. The following day, in a telephone conference, the district court granted Southwestern Bell’s motion in limine on prosecution history estoppel and judgment as a matter of law (JMOL) that the “randomly receive” limitation was not literally met. Collins appealed.
The Federal Circuit dismissed several of Collins’ arguments in a summary succession, affirming all but one of the district court rulings. The surviving argument concerned the procedure with which the district court found non-infringement as a matter of law of the claim term “randomly receive.”
Collins argued that the district court improperly ruled on non-infringement. The Federal Circuit agreed, finding a JMOL was not proper under either Rule 50 or Rule 56. Under Rule 50, the Court found that JMOL was improper because “Rule 50 only applies when a party has been fully heard on an issue and there is no legally sufficient evidentiary basis for a reasonable jury to find for that party on the issue.” The Court reasoned, “trial had not even begun in this case” and Collins was not given the opportunity to be fully heard on the issue. Further, the Court found a JMOL was improper under Rule 56, which requires district courts to give the non-moving party a 10-day notice, allowing the non-moving party to make “every factual and legal argument,” unless the failure to give notice is harmless. The Court ruled that failure to give notice may be harmless if the non-moving party admittedly has “no additional evidence,” or after consideration of additional evidence, a court finds “no genuine issue of material fact.” The Court held that Collins was not given a 10-day notice and that failure to give notice was not harmless because there was a contextual dispute over a crucial piece of expert testimony. Thus, the Federal Circuit vacated the district court’s JMOL for non-infringement and remanded the case for further proceedings.
Federal Circuit Vacates Inequitable Conduct Decision
By Sue F. Xia
U.S. Court of Appeals for the Federal Circuit vacated a trial court’s decision that the inventor had committed inequitable conduct in the prosecution of a patent for failure to disclose the object that inspired his invention—a pucker free garment seam. TALtech Ltd. v. Esquel Apparel Inc., Case No. 07-1506 (Fed. Cir., May 22, 2008) (per curiam) (non-precedential).
TAL and Esquel are both garment makers based in Hong Kong. Esquel filed suit in U.S. District Court for the Western District in the state of Washington for declaratory judgment of non-infringement of a TAL patent. The next day, TAL filed suit in the U.S. District Court for the Eastern District of Texas alleging infringement. Both cases were consolidated in the Western District.
The patent at issue is directed for a pucker-free garment seam that creates a tailored, wrinkle-free appearance. The seam uses an adhesive and eliminates the puckering associated with the shrinkage of sewing thread.
The trial court found that TAL committed inequitable conduct before the U.S. Patent and Trademark Office (USPTO) because the inventor did not disclose the raincoat seam that inspired his invention. Esquel appealed.
The Federal Circuit reversed, noting that an inventor need not necessarily disclose the object that inspired his invention, only subject matter that a reasonable examiner would have considered material to examination. As for materiality, TAL claimed that the undisclosed raincoat seam was merely cumulative to a published German patent, which was disclosed to the USPTO. As the Court explained, cumulative information would not be material to examination and if the raincoat seam was in fact merely cumulative, “no inequitable conduct lies in its nondisclosure.”
Esquel argued that by failing to present the entire sequence of the German patent method juxtaposed with the sequence described in the patent, TAL misled the Court. The Federal Circuit declined to consider the comparison, noting it was not something it could discern from the record before it. The Court therefore reversed the determination of inequitable conduct and remanded the case to the district court to determine whether the German patent reference is in fact “merely cumulative to the undisclosed raincoat seam, thus negating inequitable conduct.”
Transfer No Gross Trademark!
By Kenneth E. Crowell
The U.S. Court of Appeals for the Second Circuit overturned a summary judgment in favor of accused trade-secret infringer Cadbury Stani (Stani) after determining that the license in suit was ambiguous and inapposite for determination on summary judgment. The Court also discussed the legal effect of transferring a trademark “in gross,” that is, without also transferring the goodwill that the trademark symbolizes. The Topps Co. v. Cadbury Stani S.A.I.C., Case. No. 06-5316, (2nd Cir., May 15, 2008) (Cardamone, J.).
Topps licensed its trademarks and trade secrets respecting certain bubblegum brands to Stani in South America. The license was amended to terminate in 1996 and a second agreement was executed providing for transfer of the trademarks to Stani upon termination for $100,000. In 1996 the license expired by its terms, the trademarks were transferred and Stani continued to make and sell the trademarked gums. In 1999 Tops sued for misappropriation of the trade-secret gum ingredient formulas. Stani contended both that it had not used Topps’ formulas to make its gum after 1996 and that Topps had transferred the trade secrets along with the trademarks. The district court found that the contracts made no express provision for transfer of trade secrets. Nonetheless the court found for Stani on summary judgment because it decided that the parties must have intended to transfer the trade-secret gum formulas to effectively assign the trademarks since an assignment of the trademarks in gross would have been invalid.
The Second Circuit agreed that an assignment of a trademark in gross is invalid under U.S. law but observed that this is “a complex and evolving area of the law.” The Court noted a judicial trend towards finding a valid assignment where the marked goods are “substantially similar,” although not identical, to the assignor’s goods “such that consumers would not be deceived or harmed.” The Court found that the factual issue of whether Stani’s post-1996 gum was substantially similar to the gum made before 1996 using Topps’ formulas could not be determined on summary judgment. The court further observed that Argentine, not U.S., trademark law, would be legally controlling, but that the issue had never been briefed. The case was remanded with instructions to construe the contract language by considering whether the parties had intended to transfer the trademarks in gross notwithstanding the unclear legal effect of that intent.
Practice Note: When assigning trademarks, counsel should carefully consider and contractually provide for the goods to which the assigned marks will be applied. Here, 12 years after purported assignment of the trademarks and nine years after suit was initiated, the rights of the parties remain unresolved.
California Misappropriation Claim Not Pre-Empted by Copyright Act
By Sarah Simon
Addressing whether the U.S. Copyright Act would pre-empt a claim for misappropriation under California state law, the U.S. Court of Appeals for the Ninth Circuit vacated the ruling of the lower court and found that the state claim could proceed. Stewart Title of California Inc. v. Fidelity National Title Co., Case No. 06-55955 (9th Cir., May 19, 2008) (Pollak, J., sitting by designation) (non-precedential).
In Stewart, plaintiff Stewart Title of California (Stewart), a real estate service company, sued defendant Fidelity National Title (Fidelity) for copyright infringement, unfair competition and misappropriation for using sales contract and disclosure forms substantially identical to Stewart’s. Fidelity moved for summary judgment, arguing that Stewart’s forms were based upon forms prepared in 1998 by another company—the now-disbanded Southern Counties Escrow. Stewart maintained that Southern Counties Escrow had assigned Stewart copyright in the forms.
The district court granted summary judgment on the copyright claims and judgment on the pleadings on state law claims. Stewart appealed.
The Ninth Circuit vacated the district court’s granting of summary judgment, finding that the district court had not sufficiently resolved the issue of whether Fidelity had standing to challenge the assignment, nor whether Stewart had adequately proven the requisite written confirmation of a prior oral assignment as required by the Copyright Act to execute an assignment.
Except for Stewart’s state misappropriation claim, the Ninth Circuit affirmed the lower court’s grant of judgment on the pleadings with regard to Stewart’s other state law claims as pre-empted under the Copyright Act. As for the misappropriation claim, as the Court explained, the Copyright Act pre-empts “all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright.” The rights protected under the Copyright Act include the rights of reproduction, preparation of derivative works, distribution and display. If a state law claim contains an extra element that makes the right asserted qualitatively different from those protected under the Copyright Act, the state law claim is not pre-empted by the Copyright Act. The misappropriation claim, the court found, included the extra element of protection against improper use, thereby making the rights protected by the state law qualitatively different from those afforded in the Copyright Act. Thus, with respect to the misappropriation claim, the court vacated the district court’s grant of judgment on the pleadings and remanded for further proceedings.
It’s Not the Design—Just the Idea
By Jeremy T. Elman
Addressing a copyright dispute between an individual designer and developers for Donald Trump, the U.S. Court of Appeals for the Eleventh Circuit affirmed summary judgment for the developers. Oravec v. Sunny Isles Luxury Ventures, L.C., 2008 U.S. App. LEXIS 10354 (11th Cir., May 14, 2008) (Wilson, C.J.).
Oravec was an individual designer who, in 1995 and 1996, developed a design for a high-rise building that featured the use of alternating concave and convex segments and elevator cores protruding through the building’s roofline. Oravec registered these designs as architectural works with the United States Copyright Office in 1996 and 1997. Oravec alleged that the defendant developers designed a derivative work in violation of those copyrights—a twin high-rise condominium development in Sunny Isles Beach, Florida, referred to as the “Trump Buildings.” The district court had granted summary judgment to the defendants both because there was no substantial similarity between Oravec’s copyrighted works and the Trump Buildings and because plaintiff Oravec had failed to secure a derivative work registration before filing suit.
Oravec appealed, arguing that 10 elements of his copyrighted works were infringed. The Eleventh Circuit first discussed the “fundamental axiom that copyright protection does not extend to ideas but only to particular expressions of ideas.” The court held that similarities in the 10 elements were nothing more than at the “conceptual level” and that it appeared Oravec was claiming to hold a copyright in an idea.
The court considered each of the claimed elements, which included the twin tower design, elevator shafts, holes in the building, plazas, fountains and other elements with the Trump Buildings and concluded they were not “substantially similar.” The court stated that “[w]hile it is true that Oravec’s designs and the Trump Buildings have a number of features in common, those elements are similar only at the broadest level of generality.” Protecting that level of generality would extend copyright law beyond its limits. To not grant summary judgment as to that argument “would effectively bar all other architects from incorporating these concepts into new and original designs.”
The court also affirmed the summary judgment grant because Oravec had failed to secure an architectural work copyright on the derivative design before filing suit. Oravec had received a copyright registration for the derivative work as a “pictorial, graphic or sculptural” (PGS) work, but not an architectural work. Oravec argued that the court could consider PGS registration as an architectural work registration under the “effective registration” doctrine, but that is only applicable when a party registers a derivative work that references prior unregistered works, thus effectively registering the prior unregistered work. The court held that Oravec’s reliance on this doctrine was “misplaced” because Oravec had created no prior unregistered architectural work. Therefore, Oravec’s PGS copyright did not allow him to bring suit for infringement by an architectural work.
Antitrust Claims Against Patent Pool
By Stefan M. Meisner and Rachael Lewis
In a terse non-precedential decision, the U.S. Court of Appeals for the Federal Circuit affirmed a 2006 district court order dismissing antitrust claims against participants in an international patent pool arrangement. The detailed district court decision concluded that a patent pool for DVD technology was lawful under the U.S. antitrust laws. Wuxi Multimedia, Ltd. v. Koninklijke Philips Elecs., Case No. 08-1041 (Fed. Cir., June 5, 2008) (per curiam).
Two Chinese DVD manufacturers, Wuxi Multimedia and Orient Power (Wuxi), filed an antitrust class action lawsuit against the 3C Patent Group (3C), an international patent pool consisting of technology owned by Phillips, Sony, Pioneer, and LG Electronics. Wuxi alleged that the defendants violated U.S. antitrust laws by conspiring through 3C to license patented DVD technologies at “fixed” prices and conspiring to monopolize the DVD market.
Prior to the Wuxi proceedings, the Department of Justice (DOJ) analyzed this specific patent pool in a business review letter and determined that it would not engage in enforcement proceedings because the pool did not appear to violate the antitrust laws and provided substantial competitive benefits. Offering guidance on the structure of these types of arrangements, the DOJ business review letter suggested that patent pools have the following characteristics relevant to the Wuxi court’s analysis of the 3C pool:
- include only valid patents (i.e., not expired patents)
- include only essential patents
- permit contributors to license technology outside the pool (i.e., non-exclusive licenses)
Wuxi filed a second amended complaint in 2005 against 3C alleging various anti-competitive claims such as price fixing, tying, price discrimination and monopolization. Wuxi sought damages and a declaratory judgment invalidating the 3C patent pool. The district court dismissed the complaint with prejudice in January 2006.
The district court applied the “rule of reason” analysis to the pool, rejecting Wuxi’s contention that the pool represented a conspiracy unlawful per se under the antitrust laws. Relying on the Supreme Court’s Broadcast Music decision, the district court held that the 3C pool creates a new “product” in the form of a license to pooled technology that has the potential for substantial benefits. Therefore, the more fact-intensive rule of reason analysis was the proper framework to address Wuxi’s claims.
Wuxi challenged the pool by asserting, without any corroborating facts, that the pool included “non-essential” patents, conduct the DOJ indicated could be unlawful in its business review letter. The plaintiffs, despite benefiting from 18 months of discovery, could not assert which of the 100 patents in the 3C pool were non-essential and alleged no facts describing how those patents were non-essential. The court summarily rejected Wuxi’s contention.
Wuxi contended that prices for DVD players were “stabilized” due to the 3C pool, which constituted anti-competitive price fixing under the antitrust laws. The district court rejected this contention as well, concluding that plaintiffs asserted harm in a market (i.e., DVD players) different from the product at issue (DVD technology). The defendants did not have the power to fix prices that third-parties charged for DVD players. The court concluded: “Plaintiffs’ allegations of harm are directed at the market for DVD players, not the market for DVD patent licensing.”
Finally, in addressing Wuxi’s remaining conspiracy and monopolization contentions, the court rebuffed the idea that the patent pool harmed competition under the rule of reason. The declining DVD prices suggested otherwise and no additional evidence supported plaintiffs’ assertion.
In short, the district court looked past Wuxi’s “conclusory” allegations of anti-competitive conduct and instead sought facts supporting Wuxi’s contentions. Without supporting facts, the district court rejected Wuxi’s claims and the Federal Circuit had no difficulty affirming the decision.
Practice Note: The decision corroborates the DOJ’s analysis in its business review letter that addressed this very patent pool. Wuxi’s unsupported allegations of conduct inconsistent with the DOJ’s business review letter indicated that the 3C pool’s adherence to that letter minimized, if not eliminated, antitrust risk.
PTO Issues New Rules for Appeal Briefs
Please contact Paul Devinsky
On June 10, 2008, the U.S. Patent and Trademark Office (USPTO) issued new rules regarding the filing of appeal briefs, which go into effect on December 10, 2008. (See Federal Register, Vol. 73, No. 112 for a full statement of the new rules.)
The new rules feature a substantial change to the content of Appeal Briefs. No longer is an appellant required to file sections directed to a Status of Claims or Summary of Claimed Subject Matter. However, the rules require the following new sections to be added to the appeal brief:
Jurisdictional statement—The appeal brief must include a statement of the statute under which the appeal is taken, the date of the decision from which the appeal is taken, the date the notice of appeal was filed and the date the appeal brief is being filed. If a notice of appeal or an appeal brief is filed after the time specified in the rules, the appellant also would have to indicate the date an extension of time was requested and, if known, the date the request was granted.
Table of contents—Appellants must have a table listing each section in 37 CFR § 41.37(e) and the page where each section begins in the Appeal Brief..
Table of authorities—The appeal brief must include a listing of court and administrative decisions (alphabetically arranged), statutes and other authorities, along with a reference to the pages of the appeal brief where each authority is cited.
Statement of facts—Appellants will set out in an objective and non-argumentative manner the material facts relevant to the rejections on appeal, preferably in numbered paragraphs. A fact would be required to be supported by a reference to the page number of the Record. Where appropriate, the citation should also be to a specific line or paragraph and to a drawing figure and element number of the Record. Statements of facts should be set out in short declarative sentences and each sentence should address a single fact.
In addition, in the Argument section, where an argument has previously been presented to the examiner, the appellant would have to identify where any argument being made to the Board of Patent Appeals and Interferences (the Board)was made in the first instance to the examiner. For arguments not previously made during the course of prosecution, an appellant is required to state that the arguments are new.
Appendix—The appendix would additionally include a claims section, claim support and drawing analysis section, means or step-plus-function analysis section, evidence section and related cases section.
Attorneys are urged to comply with these requirements. The Board may impose sanctions on appellants that fail to comply with an order, advance or maintain “a misleading or frivolous request for relief or argument” or engage in “dilatory tactics.”