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En banc Federal Circuit broadens multiple-actor direct infringement (Akamai v. Limelight)

Posted in Appeals, Litigation, Patent Alerts

Today, the Federal Circuit sitting en banc changed direction again on § 271(a) direct infringement and ruled that Limelight was liable for direct infringement based on substantial evidence supporting the jury verdict of infringement where the “alleged infringer conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method and establishes the manner or timing of that performance.” (this overrules the panel decision in this case that was the subject of our May 13, 2015 post).  This is a relatively short–and very important–decision, so we highly recommend reading it in its entirely.  But we also provide a short summary below.


We provided background on this case in our prior posts as this case made its way from the Federal Circuit, to the Supreme Court, and back to the Federal Circuit (see our May 13, 2015 post, June 2, 2014 postJan. 10, 2014 post and Aug. 31, 2013 post).

Patent owner Akamai sued Limelight in 2006 for infringing a patent with method claims directed to delivering content over the Internet.  Limelight performed all steps of a method claim except that Limelight’s customers performed the claimed method steps of “tagging” and “serving”.  The trial court instructed the jury that Limelight would be responsible for the customer’s performing those steps if Limelight directs or controls its customers’ activities.  The jury found that Limelight infringed, which the court initially confirmed, but later set aside after the Federal Circuit’s decision in Muniauction v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008).

On appeal, the Federal Circuit took the matter en banc and decided not to review the direct infringement issue, because there was indirect infringement if all steps are performed even if by different actors — i.e., even if no § 271(a) direct infringement attributed to a single actor. (see our Aug. 31, 2012 post).  The Supreme Court reviewed and reversed that decision, holding that § 271(a) direct infringement attributable to a single person is required for indirect infringement. (see our Jan. 10, 2014 post and June 2, 2014 post).  The Supreme Court raised questions whether the Federal Circuit’s standard for multiple-actor direct infringement (also called “divided” or “joint” infringement) was proper, but left that issue for the Federal  Circuit to sort through on remand.  On remand, the three-judge panel endorsed the prior divided infringement standard of direct infringement and found that Limelight was not liable for infringement. (see our May 13, 2015 post).


The Federal Circuit stated there were two instances where an entity will be held responsible as a § 271(a) direct infringer for steps of a method claim performed by others:

(1) where that entity directs or controls others’ performance, and

(2) where the actors form a joint enterprise.

But the court further counseled that “Section 271(a) is not limited solely to principal-agent relationships, contractual arrangements, and joint enterprises,” leaving the issue up for further case-by-case development.  Thus, the ultimate consideration is “whether all method steps can be attributed to a single entity.”

“Directs or Controls”.  The Federal Circuit looks to “general principles of vicarious liability” to determine “if a single entity directs or controls the acts of another.”  The court ruled that this is a question of fact that, when tried to a jury, is reviewed under the deferential “substantial evidence” standard.  The court identified three circumstances where a single actor is liable for § 271(a) direct infringement for directing and controlling the actions of another:

First, where that single actor “acts through an agent (applying traditional agency principles.”

Second, where that single actor “contracts with another to perform one or more steps of a claimed method.”

Third, as in this case, “when an alleged infringer conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method and establishes the manner or timing of that performance.”

“Joint Enterprise”.  The court also held that, “where two or more actors form a joint enterprise, all can be charged with the acts of the other, rendering each liable for the steps performed by the other as if each is a single actor.”  The court ruled that this, too, is a “question of fact” reviewed under the deferential “substantial evidence” standard when tried to a jury.

The court held that such joint enterprise liability for § 271(a) direct infringement requires proof of four elements:

(1) an agreement, express or implied, among the members of the group;

(2) a common purpose to be carried out by the group;

(3) a community of pecuniary interest in that purpose, among the members; and

(4) an equal right to a voice in the direction of the enterprise, which gives an equal right of control.

In this case, the Federal Circuit found Limelight liable as a § 271(a) direct infringer under the “directs and controls” test, rather than this “joint enterprise” test.

 Standard Applied to This Case.  The Federal Circuit ruled that substantial evidence supported the jury verdict of infringement based on evidence that Limelight “condition[s] use of the content delivery network” upon its customers performing the “tagging” and “serving” steps and that Limelight “establish[es] the manner or timing of performance” of those steps by the customer.

First, Limelight’s standard contract requires its customers to perform the tagging and serving steps if they want to use Limelight’s service: “if Limelight’s customers wish to use Limelight’s product, they must tag and serve content.”

Second, evidence supports finding that Limelight established the manner or timing of its customers performance.  Limelight sends a welcoming letter telling customers that a Limelight Technical Account Manager will lead implementation of Limelight’s services, and includes a “hostname” that Limelight assigns to the customer to integrate into the customer’s webpages, which integration includes the “tagging” step.  Limelight provides “step-by-step instructions” that customers must follow to use the service and Limelight provides guidelines to customers with further information on tagging content.  Further, Limelight’s engineers “continuously engage with customers’ activities”, including installation, testing and availability when problems arise.

In sum, Limelight’s customers do not merely take Limelight’s guidance and act independently on their own.  Rather, Limelight establishes the manner and timing of its customers’ performance so that customers can only avail themselves of the service upon their performance of the method steps.

The court thus concluded that substantial evidence supported the jury’s verdict “that all steps of the claimed methods were performed by or attributable to Limelight.”  The court then remanded the case to the Federal Circuit three-judge panel “for resolution of all residual issues consistent with this opinion.”

Ninth Circuit affirms Judge Robart’s RAND decision (Microsoft v. Motorola)

Posted in Appeals, Court Orders, Litigation

Yesterday, the Ninth Circuit court of appeals issued a decision affirming Judge Robart’s RAND decision in the much watched Microsoft v. Motorola case, basically ruling that the determination of a reasonable and non-discriminatory (RAND) royalty rate and Motorola’s breach of its RAND commitments were reasonable based on the specific procedural and evidentiary issues presented.  This case provides good insight into procedural and evidentiary issues that those litigating standard essential patents (SEPs) should consider, which can have a significant impact on the outcome of a case, as they did here.


This case is but one of many between Microsoft and Motorola.  In early October 2010, Microsoft sued Motorola for patent infringement of smartphone-related patents in both the U.S. International Trade Commission (ITC) and W.D. Washington district court.  Later that month, Motorola sent two letters to Microsoft offering a license under Motorola patents asserted to be essential to the IEEE 802.11 WiFi standard and the ITU-T H.264 video encoding standard, respectively, and seeking a royalty of 2.25% of the price of Microsoft end products that use that technology — e.g., XBox with WiFi or Windows with video encoding capability. (see our April 25, 2013 post for more detail about the pre-suit timeline).  A week or so later, Microsoft filed the instant case against Motorola seeking a declaratory judgment that Motorola had breached its RAND licensing obligations. (see our May 6, 2013 post for a review of the initial pleadings).  Motorola then sued Microsoft in W.D. Wisconsin district court seeking to enjoin Microsoft from using the H.264 patents and also sued Microsoft in the ITC seeking to exclude importation of Microsoft’s Xbox products.  The district court cases were consolidated before Judge Robart in W.D. Washington district court.

German Injunction.  In the meantime, the global patent dispute between the parties continued.  In July 2011, Motorola sued Microsoft in Germany for infringing a German patent directed to the H.264 video encoding standard.  A trial was held in December 2011 and several months later, in April 2012, the German court awarded Motorola an injunction against Microsoft.  While that German action was pending, Microsoft relocated one of its distribution centers out of Germany given the injunction threat.  The German injunction is not self enforcing; rather, Motorola must post a bond to secure Microsoft against damages caused by the injunction if it ultimately is overturned on appeal and Microsoft also would have an opportunity to seek a stay of that injunction.

Microsoft also asked Judge Robart in the instant case to enjoin Motorola from seeking any injunctions — including enforcement of any injunction awarded in the German action — pending resolution of the SEP issues presented in this case.  Judge Robart granted that injunction.  In a decision to haunt Motorola later, Motorola appealed Judge Robart’s injunction ruling to the Ninth Circuit–rather than the Federal Circuit–where Motorola argued that “[b]ecause Microsoft’s complaint is pleaded in terms of contractual rather than patent rights”, appellate jurisdiction properly lies withing the regional circuit’s general jurisdiction (the Ninth Circuit), rather than the Federal Circuit’s subject matter jurisdiction over patent law.  The injunction was affirmed by the Ninth Circuit, which ruled that it properly had jurisdiction over the case (see our May 6, 2013 post discussing the injunction and appeal).  In November 2012, Judge Robart later granted Microsoft’s motion to dismiss Motorola’s claims for injunctive relief and barring Motorola from seeking such relief against Microsoft in any country based on patents essential to the 802.11 WiFi or H.264 video encoding standards. (see our Jan. 3, 2013 post).

Soon thereafter, in January 2013, the U.S. Federal Trade Commission (FTC) announced a consent decree agreement with Google/Motorola (Google having acquired Motorola Mobility in 2012) where Motorola agreed to a specific procedure for licensing SEPs before Motorola would seek injunctive relief, which procedure includes an opportunity for a tribunal to determe licensing terms. (see our Jan. 3, 2013 post).

RAND Determination (Bench Trial).  In November 2012, Judge Robart held a bench trial to determine what would be a range of reasonable RAND royalty rates as well as what would be the specific RAND royalty rate to apply here.  He later requested and received additional submissions about a licensing agreement that Google– which now owned Motorola–had entered with MPEG LA on a patent pool directed to the H.264 standard. (see our Jan. 24, 2013 post,  Feb. 22, 2013 post and Mar. 4, 2013 post).

On April 25, 2013, Judge Robart issued a first-of-its-kind ruling to set a RAND royalty for the Motorola 802.11 and H.264 patents with respect to Microsoft’s alleged infringing products. (see our April 25, 2013 post; see also our May 1, 2013 post for annotated version of this decision).  He found a RAND royalty rate of 0.555 cents per unit (from a reasonable RAND range from 0.555 to 16.389 cents per unit) for Motorola’s H.264 video encoding patents.  He found a RAND royalty rate of 3.471 cents per unit (in a range from 0.8 to 19.5 cents per unit) for Motorola’s 802.11 WiFi patents.  Both of these rates fell very far below the 2.25% of the end unit selling price (about $4.50 per $199 Xbox) that Motorola requested in its initial offer letters that led Microsoft to file the instant case.

Judge Robart’s over-200-page decision was premised on a modified Georgia-Pacific royalty rate with “economic guideposts” in which he removed factors deemed at odds with an obligation to license patents on a non-discriminatory basis — e.g., remove a factor that would consider whether parties are competitors, which typically would indicate a higher royalty rate would be sought if a patent owner were licensing a competitor to use the technology. (see our Apr. 26, 2013 post on the modified Georgia-Pacific analysis).

Breach Determination (Jury Trial).  The next step was determining whether Motorola breached its RAND commitment.  Judge Robart ruled that this was a fact sensitive issue for the jury that was not controlled by any single fact detached from the underlying circumstances — e.g., Motorola’s seeking an exclusion order or the high amount sought in Motorola’s initial license offer to Microsoft. (see our Aug. 12, 2013 post).  The jury trial started in August 2013 and the jury ultimately found that Motorola breached its RAND obligations. (see our Sep. 4, 2013 post; see also our Aug. 27, 2013 post previewing the jury trial).

A few weeks later, Judge Robart ruled that sufficient evidence supported the jury’s verdict.  He found that the essence of Microsoft’s various RAND-breach theories to be “whether Motorola’s conduct violated the duty of good faith and fair dealings.”  No particular factors were deemed dispositive by themselves, but evidence of Motorola’s course of conduct supported the verdict, including factors relating to Motorola’s initial offer letters, Motorola’s seeking injunctive relief, and Motorola’s going after Microsoft based on WiFi chips within the accused products, rather than going after the WiFi chip manufacturer Marvell. (see our Sep. 26, 2013 post).

Judge Robart then issued a Rule 54(b) judgment–i.e., a final judgment on some, but not all, claims–that would allow the parties to appeal the RAND issues while the remaining claims in the case were stayed pending the appeal.  Specifically, he entered Rule 54(b) judgment in Microsoft’s favor on (1) Microsoft’s breach of contract claim; (2) Judge Robart’s prior RAND ruling; and (3) Motorola’s claim for a declaration that Microsoft repudiated RAND licensing rights by not negotiating a license. (see our Nov. 12, 2013 post).

Appeal To Ninth Circuit Via Federal Circuit.  Motorola promptly appealed to the Federal Circuit, which may have been deemed a more favorable forum for a patent owner than the a generalist regional court such as the Ninth Circuit.  But Microsoft move to transfer the case to the Ninth Circuit because, among other things, Motorola previously appealed the injunction issue to the Ninth Circuit, which ruled it had jurisdiction over the matter as a contract action.  Without deciding the merits of whether the Federal Circuit or Ninth Circuit had jurisdiction, the Federal Circuit agreed that law of the case required the Federal Circuit to respect the Ninth Circuit’s ruling that it has appellate jurisdiction over this matter.  So the appeal was transferred to the Ninth Circuit. (see our May 5, 2014 post; for summary of the parties briefs on the motion, see our Nov. 25, 2013 post, Dec. 10, 2013 post and Dec. 16, 2013 post).

The appeal then proceeded in the Ninth Circuit. (see our Apr. 7, 2015 post discussing party and amicus briefs).  The Ninth Circuit held oral argument in April 2015.  One of the appeal issues that became clearer during argument was Motorola’s challenge to Judge Robart’s bifurcated procedure where (1) the judge held a bench trial and determined a RAND royalty rate and range and then (2) held a jury trial to determine whether Motorola breached its RAND obligation.  Motorola argued this was prejudicial error, because the jury was required to accept the judge determined RAND rate without Motorola challenging any of the basis that supported it.  Microsoft argued that Motorola had agreed to this procedure and cannot be heard to complain about it now. (see our Apr. 8, 2015 post summarizing the argument and providing link to video of argument; see also our Apr. 7, 2015 post that summarized the case up to the date of oral argument).


 Contract Case or Patent Case.  The first issue was whether the Ninth Circuit or the Federal Circuit has appellate jurisdiction over this case.  The court ruled that its exercising jurisdiction over the injunction interlocutory appeal as well as the Federal Circuit’s decision to transfer the case to the Ninth Circuit were both law of the case.  That doctrine requires substantial deference to those prior decisions on appellate jurisdiction except in certain circumstances, such as the prior decision was clearly erroneous, there have been changed circumstances or to avoid manifest injustice.  None of those circumstances existed here.

In applying the law of the case standard, the court ruled that a contract dispute does not arise under law merely because the contract is a patent license:

A complaint that alleges breach of contract and seeks damages sounds in contract; its nature does not change because the contract is a patent license.   Even if a court, in interpreting a contract and assessing damages, deems it appropriate to apply the law of patent infringement, that of itself does not change the complaint into one arising under the patent law.

Motorola points out that the Federal Circuit has exercised jurisdiction in some breach-of-contract cases.  But those cases involved questions of patent infringement, patent validity, or claim construction, or included an embedded, outcome-determinative interpretation of a patent law statute.  This case, in contrast, is a straight breach of contract action.

Calculation of appropriate royalty amounts in contractual patent license cases involves similar determinations to those that arise when calculating damages in patent infringement cases.  So there is some overlap in that regard between breach of patent license cases and Federal Circuit patent infringement cases.  But Motorola has cited no case in which the Federal Circuit has exercised jurisdiction over a breach of contract claim for damages where the mode of calculating contract damages, not any pure patent issue, was at stake.  [internal quotations ommitted].

In another part of the decision, the court similarly stated that reference to Federal Circuit patent damages law may be proper in the contract action, but does not convert this into a patent case:

We reiterate that this is not a patent law action.  Still, the Federal Circuit’s patent law methodology can serve as guidance in contract cases on questions of patent valuation.  The district court’s analysis properly adapted that guidance to the current context.

Motorola Consented To Bench Trial on RAND Royalty Rate.  The court ruled that Motorola affirmatively consented to Judge Robart having a bench trial, rather than a jury trial, to determine a RAND royalty rate for each SEP portfolio.  The court found that Judge Robart “quite reasonabley” determined that a “true RAND royalty rate for Motorola’s SEPs was an important fact for the jury to consider in determining whether Motorola breached its good faith obligations under the RAND agreements.”  Judge Robart asked the parties how they would like to proceed in determining that and both parties agreed that “the court [will] decide all the material terms of the RAND license.”  But they left open the question of who would determine “the question of Motorola’s breach of its contractual obligation of good faith and fair dealing”, which Motorola later requested be determined by a jury.

In deciding that Motorola had waived a jury trial on this issue, the court did make special note that Motorola had not raised to Judge Robart or the Ninth Circuit a “Seventh Amendment claim [of right to trial by jury] with respect to the RAND rate bench trial itself.”  Given Motorola’s waiver, “[w]e therefore do not consider whether, absent consent, a jury should have made the RAND determination.”

Hypothetical Negotiation Date.  The court’s review of the hypothetical negotiation — or what they called a “Hypothetical Agreement” — focused mainly on Motorola’s argument about the date of such hypothetical.  The court found that the method for calculating a RAND rate was “generally [consistent] with Motorola’s approach” and that “[g]enerally, the court credited Motorola’s experts; where it did not, it provided reasoned explanations for not doing so,” stating:

The framework settled on was “generally [consistent] with Motorola’s approach.”  Applying that approach, the district court sought to approximate the royalty rates upon which the parties would have agreed by setting up a hypothetical negotiation between the parties.  In doing so, the court carefully thought through the “factors an SEP owner and implementer woudl consider” in an actual negotiation directed at licensing a patent subject to RAND commitments.  The court then discussed each of Motorola’s fifteen H.264 patents and eleven 802.11 patents, considering the objective value each contributed to each standard, given the quality of the technology and the available alternatives as well as the importance of those technologies to Microsoft’s business.  Finally, the court performed a meticulous analysis of the testimony of eighteen witnesses, including executives, economists, and technology experts, to sort out which evidence to rely upon in determining the RAND royalty rate.  Generally, the court credited Motorola’s experts; where it did not, it provided reasoned explanations for not doing so.

The court found that Motorola’s primary challenge was the requirement in Georgia-Pacific Factor 15 that the hypothetical negotiation occurs “at ‘the time the infringement began.'”  The court agreed that Judge Robart had, to some extent, considered “the present-day value to Microsoft of Motorola’s patents,” but ruled that “[t]his partial present-day focus did not … render the district court’s RAND-rate determination invalid.”  The court gave four reasons here.

First, the Federal Circuit has “never described the Georgia-Pacific factors as a talisman for royalty rate calculations” and agreed with Judge Robart’s approach to eliminate or modify factors to fit the circumstances of the case presented.  Here, Microsoft claimed that Motorola’s breach of contract was on-going, so Judge Robart reasonably could have “include[d] the present-day value of Motorola’s SEPs as a factor in calculating the RAND rate-and-range for use in the breach-of-contract proceeding.”

Second, “Motorola never specifies the past date the district court should have used.”  Motorola referred to both the date Microsoft’s alleged patent infringement began and the date Motorola sent Microsoft offer letters; but “Motorola did not mention either date in putting forth its version of the hypothetical negotiation analysis in its post-trial brief.”  Further, “the ‘infringement’ at issue in this case is Motorola’s breach of contract, not Microsoft’s use of Motorola’s patents,” and such breach “was not tied to any specific date.”

Third, both parties offered “volumes of data” and “Motorola itself” urged Judge Robart to consider studies and reports from different time frames.  Thus, “[a]s the data presented was not pinpointed to a past date, the district court’s approximation from that data also could not be tied to a specific historical moment.”

Fourth, “Motorola has not shown–nor has it even argued–that it was prejudiced by the court’s analysis.”  Rather, Motorola pointed to only one material change since the dispute began: Google bought Motorola in 2012.  Judge Robart considered Google’s broad commercial interests in the patent pools.  But Motorola explained no prejudice from that:

But Motorola has not explained how it was prejudiced by consideration of Google’s interests.  In fact, Microsoft maintains, persuasively, that Motorola benefited from the court’s conflation of Google and Motorola, as Google, a “sophisticated, substantial technology firm[] with [a] vast array[] of technologically complex products,” would obtain more value from the pool than would Motorola as an independent entity.

The court concluded that Judge Robart properly applied the hypothetical approach under the circumstances:

In sum, given the need for flexibility in determining a royalty rate for a RAND-encumbered patent, and given that Motorola has not shown that the court’s consideration of the companies’ circumstances at the time of the bench trial prejudiced it, the district court’s RAND order properly applied the hypothetical agreement approach.

Comparable Licenses.  The court next considered Motorola’s argument that Judge Robart put too much emphasis on patent pools and not enough on Motorola’s historical licenses.  Judge Robart did credit Motorola’s experts concern that patent pools  license at lower rates than licenses entered in bilateral negotiations given, for example, non-monetary value in the patent pools such as grant-back of licenses to other pool member patents.  But he accounted for that by multiplying the pool rates by three.  Although Motorola argued this still was not enough, this was just one factor Judge Robart used and, for the 802.11 patents, it ended up “being the most favorable to Motorola.”

For the H.264 patents, the patent pool considered “were essential to the same technical standards, and Motorola provided no evidence that its patents were more valuable than the other patents in the pool”; “[i]fi anything, the record indicates that Motorola’s patents were on average less valuable than other H.264 patent.”

Many of the Motorola patents apply only to interlaced rather than (the more advanced) progressive video.  Motorola offered some evidence suggesting that interlaced video coding was still valuable to Microsoft, but it did not show that support for interlaced video was more important to Microsoft than other video-coding capabilities.  Motorola therefore was not prejudiced by the court’s assumption that its patents were of roughly equal value to those in the pool, as they probably were worth less.

With respect to Motorola’s historical licenses showing royalty rates close to the 2.25% Motorola offered Microsoft, “[i]n the current context … it was not clear error to reject the past licenses as too contextually dissimilar to be useful to the RAND rate calculation.”

Judge Robart “reasonably concluded that … VTech licenses were not reliable indicators of the RAND royalty rate” where VTech entered a license under Motorola’s cell phone patents to avoid litigation and “paid only trivial royalties” for the 802.11 and H.264 part of the much broader licensing agreement.

The RIM Agreement provided a blended rate for all Motorola patents (whether or not essential to a standard) that made it “impracticable to isolate, or apportion the value of the 802.11 and H.264 SEPs, particularly given the evidence that Motorola’s cell phone patent portfolio was highly valuable and likely dictated the terms of the agreement.”  Further, the RIM agreement was entered “to resolve an ongoing infringement dispute … further diminishing its trustworthiness as an indicator of a free-standing RAND rate.”

Similarly, the Symbol Technology agreements were “formed under threat of litigation, included monetary caps, and provided licenses for Motorola patents that expired before Motorola and Microsoft’s hypothetical agreement would have occurred.”

Thus, Judge Robart “provided reasonable explanations for giving the Motorola bilateral licenses little to no weight” and “Motorola does not address any of those explanations.”

Based on the foregoing, the court affirmed Judge Robart’s royalty rate determination, stating:

In sum, in determining the RAND rate and range for each SEP portfolio, the district court engaged in a thoughtful and detailed analysis, giving careful consideration to the parties’ briefing and evidentiary submissions, and to the testimony.  Although Motorola criticizes the district court’s approach, it provides no alternative other than strict adherence to the Georgia-Pacific factors, without accounting for the particulars of RAND agreements–a rigid approach disapproved of by the Federal Circuit in Ericsson.  We conclude that the court’s RAND determination was not based on a legal error or on a clearly erroneous view of the facts in light of the evidence.

Jury’s Breach Verdict.  The court found that evidence supported the jury’s verdict that Motorola breached its RAND commitment based on Motorola’s injunction related activity and overall course of conduct, where “the only damages argued for and awarded were tied to the fees for defending the injunctive actions and the costs of moving Microsoft’s European distribution facility out of Germany.”  The court noted that, for the allged breach based on Motorola’s injunction action, the jury was instructed that it should consider the following factors “alone or in combination”:

(1) Whether Motorola’s actions were contrary to the reasonable and justified expectations of other parties to the contract; (2), whether Motorola’s conduct would frustrate the purpose of the contract; (3), whether Motorola’s conduct was commercially reasonable; (4), whether and to what extent Motorola’s conduct conformed with ordinary custom or practice int he industry; (5) to the extent the contract vested Motorola with discretion in deciding how to act, whether Motorola exercised that discretion reasonably; (6), subjective factors, such as Motorola’s intent and whether Motorola had a bad motive.

Microsoft presented “significant evidence” under those instructions for a jury to “infer that the injunctive actions violated Motorola’s good faith and fair dealing obligations.”  The “jury could conclude that Motorola’s actions were intended to induce hold-up, i.e., to pressure Microsoft into accepting a higher RAND rate than was objectively merited, and thereby to frustrate the purpose of the contract.”  For example, consumers would not buy Microsoft products that were enjoined from having WiFi or playing back standard video.  Motorola’s requested royalty also was “significantly higher” than the court determined RAND rate, “suggest[ing] that Motorola sought to capture more than the value of its patents by inducing holdup.”  Further, Motorola filing the lawsuit immediately after expiration of the time Motorola requested for Microsoft to respond to the initial license offers indicated that the offers were just for show so that Motorola could at least say it had made an offer.

Motorola also filed the injunction suits after Microsoft filed the instant suit.  The instant suit could establish RAND rates to ultimately compensate Motorola so that Motorola would not suffer the irreparable harm needed to support injunctive relief:

Motorola’s injunction suits were also brought after Microsoft filed its breach of contract lawsuit with the district court.  At that point, Motorola was aware that the present lawsuit could establish RAND rates.  A patentee subject to FRAND commitments may have difficulty establishing irreparable harm.

Here, had Motorola accepted the RAND rates, it would then be fully compensated for Microsoft’s infringing use. The jury could have inferred, from that circumstance, that the injunctive actions were not motivated by a fear of irreparable harm, as payment of the RAND rate would eliminate any such harm.  In the absence of a fear of irreparable harm as a motive for seeking an injunction, the jury could have inferred that the real motivation was to induce Microsoft to agree to a license at a higher-than-RAND rate.  [internal citations omitted].

Further, Motorola had “knowledge that pursuing an injunctive action could breach its duty of good faith and fair dealing” based on the FTC investigation that culminated in a consent decree limiting circumstances when Motorola would seek injunctive relief.

The court made clear that the foregoing evidence may support the jury verdict, but “is susceptible to contrary interpretations as well.”  Here, “it was for the jurors to assess witness credibility, weight the evidence, and make reasonable inferences.”

Damages.  The court considered Motorola’s argument that damages based on Microsoft’s attorneys fees and litigation costs in connection with the injunction activity is barred by the Noerr-Pennington doctrine, which is a First Amendment right to access the courts that shields individuals from liability for engaging in litigation.  But courts have found that doctrine “does not protect patent holders from liability for asserting rights in violation of a commitment not to enforce those rights.”  The court ruled that “[e]nforcing a contractual commitment to refrain from litigation does not violate the First Amendment; if it did, every settlement of a lawsuit would be unenforceable as a Noerr-Pennington violation,” stating:

As we explained in Microsoft I, a patent-holder who signs “such a sweeping promise” as a RAND agreement “at least arguably … guarantee[s] that the patent-holder will not take steps to keep would-be users from using the patented material, such as seeking an injunction, but will instead proffer licenses consistent with the commitment made.”

The jury concluded that in these specific circumstances, seeking injunctive relief violated Motorola’s contractual RAND obligations. The Noerr-Pennington doctrine does not immunize Motorola from liability for that breach of its promise.

The court limited its ruling to the instant jury determination in these circumstances, and held that a RAND commitment does not always preclude filing an injunction action:

We agree with the Federal Circuit that a RAND commitment does not always preclude an injunctive action to enforce the SEP.  For example, if an infringer refused to accept an offer on RAND terms, seeking an injunctive relief could be consistent with the RAND agreement, even where the commitment limits recourse to litigation.  The pertinent question is whether Motorola’s obligation of good faith and fair dealing under its RAND agreements precluded it from seeking an injunction in these circumstances.  That question was for the jury to decide. [emphasis in original]

The court also went through a rather long analysis of whether Washington state law precluded an award of attorneys fees as damages.  The court ultimately concluded such damages would be allowed by a Washington court “where a party’s injunctive actions to enforce a RAND-encumbered patent violate the duty of good faith and fair dealing.”

Evidentiary Rulings.  The court reviewed two evidentiary rulings and ruled that Judge Robart did not abuse his discretion in allowing the challenged evidence.

First, Motorola challenged Judge Robart allowing the jury to receive not only the court’s bench trial RAND royalty rate determination ruling, but the full findings of fact and law of the opinion supporting that determination.  The court found this was a “close[] question.”  It ultimately ruled there was no abuse of discretion given that Motorola had waived its right to trial by jury on the RAND rate determination issue and Motorola had agreed to the bifurcated procedure.  Allowing the jury to make its own underlying factual findings that underly the judge-determined RAND rate would render that judge-determination “a nullity–a bare set of numbers, divorced from their context and meaning.”

Second, Motorola challenged the admission of evidence concerning the FTC investigation of Motorola that culminated in the FTC-Google/Motorola consent decree concerning injunctive relief for SEPs.  Although consent decrees may not be admitted to prove the truth of the government’s allegations underlying the consent decree, they may be used for other purposes such as showing notice or knowledge.  Here, the evidence was entered “to show that Motorola was aware the FTC (and Microsoft) found its conduct questionable enough to merit investigation.”  Further, this evidence “was undoubtedly probative” given similar issues in the instant case and the FTC investigation, which could have led the jury to believe the FTC instituted the investigation because it may have merit and to infer that Motorola settled because it believe its actions were wrongful.  Any prejudice from this would be cumulative of the submission of that stemming from admission into evidence of the FTC’s statement in the ITC proceedings.  And Motorola did not object to admission of that evidence.

European Union High Court gives guidance on seeking injunctive relief on FRAND-encumbered SEPs (Huawei v. ZTE)

Posted in Antitrust, Court Orders, Litigation

Today, a European Union high court issued a ruling that provides guidance on what steps the owner of a FRAND-encumbered patent that may be essential to a standard should take before seeking injunctive relief.  The court also ruled that a willing licensee should act without delay, provide a counter-offer, and actively pay royalties (in trust or otherwise) for past and on-going use of the patent while the parties negotiate toward a FRAND license.  The court further ruled that there was no specific pre-filing steps needed for the owner of a FRAND-encumbered patent to file suit seeking solely an accounting and monetary relief for past infringement (i.e., not injunctive).


The case involves patent owner (“proprietor”) Huawei asserting a European patent alleged essential to the Long Term Evolution (LTE) standard against alleged infringer ZTE.  That patent was subject to a commitment to license the patent on fair, reasonable and non-discriminatory terms (FRAND) made to the European Telecommunications Standards Insitute (ETSI).

ETSI has intellectual property right (IPR) policies that concern patents that are essential to ETSI standards.  A patent is essential to the standard where it is not possible on technical grounds to make equipment that complies with the standard without infringing the patent.  ETSI’s IPR policy provides that patent owners should be adequeately and fairly rewarded for the use of their patented technology, but also seeks to guard against such patents making standardized technology unavailable.  Thus ETSI seeks a balance between the needs of standardization for public use and the rights of patent owners.

To this end, ETSI participants are required to timely disclose their patents that are essential to an ETSI standard.  In response to such disclosure, ETSI will ask the patent owner to give an irrevocable FRAND commitment.  ETSI is supposed to determine whether to suspend work on adopting the standard until such a commitment is received.  ETSI does not check whether the patent actually is essential or valid.  Further, ETSI does not define what would be a “license on FRAND terms.”

In April 2011, patent owner Huawei brought an action in German court against ZTE for infringing the LTE patent following failed negotiations.  The parties had been in negotiations from November 2010 until end of March 2011.  Huawei offered what it considered a FRAND royalty and ZTE responded with a cross-license offer.  No agreement was reached, though ZTE continued to sell LTE devices.  In its lawsuit, Huawei sought both injunctive and monetary relief.

The German court stayed its proceedings and referred specific issues to this European Union high court dealing with competition issues, based on the following questions:

(1) Does the proprietor of [an SEP] which informs a standardisation body that it is willing to grant any third party a license on [FRAND] terms abuse its dominant market position if it brings an action for an injunction against a patent infringer even though the infringer has declared that it is willing to negotiate concerning such a license? or

Is an abuse of the dominant market position to be presumed only where the infringer has submitted to the proprietor of the [SEP] an acceptable, unconditional offer to conclude a licensing agreement which the patentee cannot refuse without unfairly impeding the infringer or breaching the prohibition of discrimination, and the infringer fulfils its contractual obligations for acts of use already performed in anticipation of the license to be granted?

(2) If abuse of a dominant market position is already to be presumed as a consequence of the infringer’s willingness to negotiate:

Does Article 102 TFEU lay down particular qualitative and/or time requirements in relation to the willingness to negotiate?  In particular, can willingness to negotiate be presumed where the patent infringer has merely stated (orally) in a general way that it is prepared to enter into negotiations, or must the infringer already have entered into negotiations by, for example, submitting specific conditions upon which it is prepared to conclude a licensing agreement?

(3) If the submission  of an acceptable, unconditional offer to conclude a licensing agreement is a prerequisite for abuse of a dominant market position:

Does Article 102 TFEU lay down particular qualitative and/or time requirements in relation to that offer?  Must the offer contain all the provisions which are normally included in licensing agreements in the field of technology in question?  In particular, may the offer be made subject to the condition that the [SEP] is actually used and/or is shown to be valid?

(4) If the fulfilment of the infringer’s obligations arising from the licence that is to be granted is a prerequisite for the abuse of a dominant market position:

Does Article 102 TFEU lay down particular requirements with regard to those acts of fulfilment?  Is the infringer particularly required to render an account for past acts of use and/or to pay royalties?  May an obligation to pay royalties be dischared, if necessary, by depositing a security?

(5) Do the conditions under which the abuse of a dominant positoin by the proprietor of a[n SEP] is to be presumed apply also to an action on the ground of other claims (for rendering of accounts, recall of products, damages) arising from a patent infringement?

Article 102 of the Treaty on the Functioning of the European Union (TFEU), referenced above, states as follows:

Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States.

Such abuse may, in particular, consist in:
(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
(b) limiting production, markets or technical development to the prejudice of consumers;
(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.


The European high court answered the questions above as follows:

1.  Article 102 TFEU must be interpreted as meaning that the proprietor of a patent essential to a standard established by a standardisation body, which has given an irrevocable undertaking to that body to grant a licence to third parties on fair, reasonable and non-discriminatory (‘FRAND’) terms, does not abuse its dominant position, within the meaning of that article, by bringing an action for infringement seeking an injunction prohibiting the infringement of its patent or seeking the recall of products for the manufacture of which that patent has been used, as long as:

prior to bringing an action, the proprietor has, first, alerted the alleged infringer of the infringement complained about by designating that patent and specifying the way in which it has been infringed, and, secondly, after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, presented to that infringer a specific, written offer for a licence on such terms, specifying, in particular, the royalty and the way in which it is to be calculated, and

where the alleged infringer continues to use the patent in question, the alleged infringer has not diligently responded to that offer, in accordance with recognised commercial practices in the field and in good faith, this being a matter which must be established on the basis of objective factors and which implies, in particular, that there are no delaying tactics.

2.  Article 102 TFEU must be interpreted as not prohibiting, in circumstances such as those in the main proceedings [i.e., the stayed German action], an undertaking in a dominant position and holding a patent essential to a standard established by a standardisation body, which has given an undertaking to the standardisation body to grant licenses for that patent on FRAND terms, from bringing an action for infringement against the alleged infringer of its patent and seeking the rendering of accounts in relation to past acts of use of that patent or an award of damages in respect of those acts of use.

The court started by noting the balance it must strike between “maintaining free competition” based on “Article 102 TFEU prohibit[ing] abuses of a dominate position” and “the requirement to safeguard th[e] proprietor’s intellectual-property rights and its right to judicial protection.”  The court further noted the limits of its ruling, stating that, in this case, “the existence of a dominant position has not been contested” and the questions to be addressed “relate only to the existence of an abuse”, thus “the analysis must be confined to the latter criterion.”

FRAND-Encumber SEPs Differ From Other Patents.  The court stated that filing a lawsuit for patent infringement “forms part of the rights of the proprietor of an intellectual-property right” and normally is not an abuse of a dominant position.  But there are “exceptional circumstances” when it may be an abuse.  This case presents two distinguishing features from most patents.  First, it involves a standard essential patent (SEP) that, unlike other patents, can preclude competitors from making standard compliant products.  Second, the patent “obtained SEP status only in return for the proprietor’s irrevocable undertaking … that it is prepared to grant licences on FRAND terms.”  Thus, a refusal to grant such a license “may, in principle, constitute an abuse within the meaning of Article 102 TFEU.”

Balance High Level of Protection Given Patent Rights.  The court noted that applicable law “provides for a range of legal remedies aimed at ensuring a high level of protection for intellectual-property rights in the internal market, and the right to effective judicial protection.”  This counsels not hindering a patent owner’s right to seek judicial relief and requiring a user to obtain a license before using the patented technology:

This need for a high level of protection for intellectual-property rights means that, in principle, the proprietor may not be deprived of the right to have recourse to legal proceedings to ensure effective enforcement of his exclusive rights, and that, in principle, the user of those rights, if he is not the proprietor, is required to obtain a licence prior to any use.

This is balanced with considerations for FRAND-encumbered SEPs, which “justif[ies] the imposition … of an obligation to comply with specific requirements when bringing actions against alleged infringers for a prohibitory injunction.”

First Step – Prior Notice to Infringer.  The court thus ruled that, before bringing suit for injunctive relief, an SEP owner must “first … alert the alleged infringer of the infringement complained about by designating that SEP and specifying the way in which it has been infringed.”  One reason for this is that, because there are a large number of patents that may be essential to a standard, the accused infringer may not “necessarily be aware that it is using the teaching of an SEP that is both valid and essential to a standard.”

Second Step – Written FRAND Terms.  If, after notice, the alleged infringer “expressed its willingness to conclude” a FRAND license, the SEP owner must then provide “a specific, written offer for a licence on FRAND terms … specifying, in particular, the amount of the royalty and the way in which that royalty is to be calculated.”  The court explained it was proper to have the SEP owner make such an offer, who may have nonpublic agreements with other licensees, since the patent owner “is better placed to check whether its offer complies with the condition of non-discrimination than is the alleged infringer.”

Accused Infringer’s Obligation.  An accused infringer has its own obligations before it can take advantage of a FRAND defense.

First, if an accused infringer objects to the proferred license offer, it must submit, “promptly and in writing, a specific counter-offer that corresponds to FRAND terms.”  This response must be in “good faith” with “no delaying tactics”:

[I]t is for the alleged infringer diligently to respond to that offer, in accordance with recognised commercial practices in the field and in good faith, a point which must be established on the basis of objective factors and which implies, in particular, that there are no delaying tactics.

Second, if its counter-offer is rejected, an accused infringer who already has been selling or otherwise using the technology before a license is entered must provide “appropriate security” for the past use of the technology and render an account of same:

The calculation of that security must include, inter alia, the number of the past acts of use of the SEP, and the alleged infringer must be able to render an account in respect of those acts of use.

Third-Party Royalty Determination.  If the parties do not reach agreement, they can seek a “royalty determined by an independent third party, by decision without delay.”

Can Challenge Patent.  The court ruled that, because the standard setting body did not determine essentiality or validity, the accused infringer should be allowed to challenge whether the patent is infringed, essential or valid during the negotiations or to reserve the right to do so in the future.

No Abuse If Seeking Past Money Damages.  The court ruled that “seeking the rendering of accounts in relation to past acts of use of [an] SEP or an award of damages in respect of those acts” are not an abuse of dominance, because such actions “do not have a direct impact on products complying with the standard … appearing or remaining on the market.”

ITC grants partial review of ALJ Essex’s decision concerning FRAND issues (337-TA-613)

Posted in International Trade Commission, Litigation

Yesterday, the U.S. International Trade Commission (ITC) gave Notice that it has determined to review in part ALJ Essex’s decision concerning claim construction and standard essential patent (SEP) issues in the investigation whether Nokia infringes InterDigital 3GPP patents (see our May 12, 2015 post on ALJ Essex’s decision).  The ITC provided a list of questions to which the parties and interested persons should submit comment by July 10, 2015 (limited to 125 pages not counting attachments) and reply submissions by July 20, 2015 (limited to 75 pages not counting attachments).

Claim Construction Estoppel Issue.  Recall that this case has a rather lengthy history that includes a trip to the Federal Circuit and remand back for the instant remand proceedings.  ALJ Essex found that, for procedural reasons based on the authorized scope of the remand proceedings, the remand proceedings were bound by claim constructions entered earlier in the investigation as to claim limitations “successively [transmits/transmitted] signals” notwithstanding those terms being construed differently in other related litigation where non-infringement or no violation was found (see our Feb. 19, 2015 post on the 800 investigation and Sep. 2, 2014 post on the 868 investigation).  The ITC has decided to review this claim construction issue and posed three specific questions on it:

  1. Have Respondents waived any reliance on the application of the Commission’s construction in the 800 and 868 investigations of the limitation “successively [transmits/transmitted] signals?”
  2. Do the Commission’s determinations in the 800 and/or 868 investigation constitute an intervening change of controlling legal authority such that the Commission should apply the construction of “successively [transmits/transmitted] signals” as found in those investigations in determining infringement in this investigation?
  3. What evidence exists in the record of this investigation with respect to whether the accused products satisfy the “successively [transmits/transmitted] signals” limitation as construed by the Commission in the 800 and 868 investigations?

SSO-Obligation (FRAND) Issues.  Recall that ALJ Essex found that Respondents had not shown that the patent owner’s standard setting organization (SSO) obligation had been triggered by a showing that the patents actually were essential to the ETSI standard at issue.  Further, he found that ETSI had rejected limiting exclusionary relief and deferred to resolution in courts, so the patent owner seeking exclusionary relief in itself did not violate its SSO obligation.  He found the focus should be on the particular SSO obligation at issue, rather than undue reliance on vague public policy concerns about patent holdup and there was no evidence of actual patent holdup in this case.  ALJ Essex also found that the accused infringers had committed patent hold-out after they lost a non-infringement ruling on appeal in this case, at which time they should have negotiated a license and there was no showing that the patent owner’s offered license in negotiation was not fair, reasonable and non-discriminatory (FRAND) under the SSO obligation.

The ITC has posed nine questions on the SSO-obligation (or FRAND) issues:

4.  Please state and explain your position on whether, for purposes of the Commission’s consideration of of the statutory public interest factors, InterDigital has in effect asserted that the patents in question are FRAND-encumbered, standard-essential patents.

5.  Please state and explain your position on whether InterDigital has offered Respondents licensing terms that reflect the value of its own patents.

6.  What portion of the accused devices is allegedly covered by the asserted claims?  Do the patents in question relate to relatively minor features of the accused devices?

7.  Please state and explain your position on the legal significance of InterDigital’s alleged willingness to accept an arbitral determination of FRAND terms with respect to the patents in question.

8.  Please state and explain your position on the legal significance of InterDigital’s alleged unwillingness to obtain a judicial determination of FRAND terms with respect to the patents in question.

9.  Please state and explain your position on whether Respondents have shown themselves willing to take licenses to the patents in question on FRAND terms.

10.  Do Respondents’ alleged delaying tactics in negotiating with InterDigital provide sufficient evidence of reverse hold-up, regardless of Respondents’ offers to license only InterDigital’s U.S. patent portfolio?

11.  Do Respondents’ licensing counteroffers satisfy the requirements of the ETSI IPR Policy?

12.  Please state and explain your position on whether the RID [i.e., ALJ Essex’s final initial determination on remand] equates patent infringement and reverse hold-up.

These questions and the ITC’s ultimate resolution of the issues promises to result in one of the most important ITC decisions in litigating SEPs in the ITC, and perhaps elsewhere.

Federal Circuit defers to district court’s factual finding that “voltage source means” connotes sufficient structure to avoid being a means-plus-function limitation (Lighting Ballast v. Philips)

Posted in Uncategorized

Today, the Federal Circuit issued a ruling in Lighting Ballast v. Philips on remand from the Supreme Court after the Teva decision changed the standard of review of a district court’s claim construction.  One of the more interesting parts of the case concerns the Federal Circuit’s deference now to the district court’s decision premised on extrinsic expert and inventor testimony that the limitation “voltage source means” connotes sufficiently definite structure to avoid interpreting the limitation as a means-plus-function limitation under 35 U.S.C. § 112 ¶ 6.

This provides good insight into the importance of prevailing on claim construction at the district court level based on extrinsic evidence, to which the Federal Circuit is now more inclined to defer, particularly in light of the Federal Circuit’s recent en banc decision that broadened when functional claim language is subject to § 112 ¶ 6 (see our June 17, 2015 post).


In February 2009, Lighting Ballast sued Philips Electronics for infringing U.S. Pat. No. 5,436,529 directed to electronic ballast circuitry that regulates high current flow in a fluorescent lamp where the electronic ballast can shield itself from destructive levels of current that occur when a lamp is removed or becomes defective.  Asserted Claim 1 includes a “voltage source means” limitation as follows:

voltage source means providing a constant or variable magnitude DC voltage between the DC input terminals.

The district court initially construed this as a means-plus-function limitation subject to interpretation under § 112 ¶ 6.  Because the district court found no corresponding structure in the patent specification, it ruled that the claim was invalid for being indefinite under § 112 ¶ 2.  But the district court changed its ruling in response to a motion for reconsideration, stating that its prior ruling “unduly discounted the unchallenged expert testimony” and “exalted form over substance and disregarded the knowledge of a person of ordinary skill in the art.”  The district court cited testimony from a technical expert and the named inventor that a person skilled in the art would understand the term “voltage source means” to correspond to a rectifier and, thus, the claim limitation had sufficient structure to avoid § 112 ¶ 6.

On appeal to the Federal Circuit, an initial panel decision in Jan. 2013 reversed the district court’s ruling and found the claim subject to § 112 ¶ 6 and  indefinite because the patent specification failed to disclose structure corresponding to the claimed function of that limitation.  The panel relied on the presumption that § 112 ¶ 6 applied because the claim limitation uses the term “means” and found that the expert testimony was not sufficient to overcome this presumption.  The Federal Circuit then took the case on review en banc to determine what deference is owed the district court’s claim construction, and decided to maintain its Cybor standard that affords no deference to the district court’s legal or factual determinations in construing claims. (see our Feb. 21, 2014 post).  The en banc Federal Circuit thus reinstated the original panel decision that had not deferred to the district court’s claim construction ruling.  But, afterwards, the Supreme Court in Teva ruled that the district court’s factual determinations require deference on appellate review, and remanded this case to the Federal Circuit for reconsideration (see our Jan. 23, 2015 post on Teva).


Judge Reyna wrote the decision for the panel, joined by Judges O’Malley and Lourie.  They addressed several claim construction and procedural issues (e.g., waiver of claim construction argument in district court), but this post will focus solely on the means-plus-function aspect.

The Federal Circuit found that the district court properly could consider extrinsic evidence “because the extrinsic evidence was ‘not used to contradict claim meaning that is unambiguous in light of the intrinsic evidence.”  The Federal Circuit “defer[red] to these factual findings, absent a showing that they are clearly erroneous”, the factual findings being described as follows:

For example, the district court determined that “while the ‘voltage source means’ term does not denote a specific structure, it is nevertheless understood by persons of skill in the lighting ballast design art to connote a class of structures, namely a rectifier, or structure to rectify the AC power line into a DC voltage for the DC input terminals.”  The district court went on to note that the language following “voltage source means” in the claim–“providing a constant or variable magnitude DEC voltage between the DC input terminals”–“when read by one familiar with the use and function of a lighting ballast, such as the one disclosed by the 529 Patent, [sic] would understand a rectifier is, at least in common uses, the only structure that would provide ‘a constant or variable magnitude DC voltage'”.  The district court further noted that “[i]t is clear to one skilled in the art that to provide a DC voltage when the source is a power line, which provides an AC voltage, a structure to rectify the line is required and is clear from the language of the ‘voltage source means’ term.”

The Federal Circuit also found that those “factual findings” were supported by the record based on testimony from the patent owner’s expert and the named inventor, stating:

Specifically, these factual findings are supported by the testimony of Dr. Roberts and Mr. Bobel [the named inventor].  Mr. Bobel testified in his deposition that the “voltage source means” limitation connotes a rectifier to one skilled in the art.  Mr. Bobel further explained that a battery could likewise provide the necessary DEC supply voltage described in the patent.  Similarly, Dr. Roberts explained that the “voltage source means” limitation suggests to him a sufficient structure, or class of structures, namely a rectifier if converting AC from a “power line source” to DC for a “DC supply voltage” or a battery if providing the DC supply voltage directly to the DC input terminals.  This expert testimony supports a conclusion that the limitations convey a defined structure to one of ordinary skill in the art.

The Federal Circuit, thus, affirmed the district courts ruling that the claim limitation “voltage source means” conveys sufficient structure to avoid application of § 112 ¶ 6.

Supreme Court still prohibits patent royalties for activity occurring after patent expires (Kimble v. Marvel)

Posted in Antitrust, Court Orders, Litigation

Today, the Supreme Court declined to overrule its prior decision in Brulotte v. Thys Co., 379 U.S. 29 (1964), and maintained its ruling that a patent holder cannot charge royalties for the use of his invention where the use occurs after the patent term has expired.  The Supreme Court held that stare decisis ruled the day, and it would be up to Congress to change the Brulotte rule if a change is to be made.  The Court also gave advice on how to structure an agreement to avoid the Brulotte rule.

Further, in explaining the strength that stare decisis plays in patent cases, the Court gave insight into distinctions between competition issues under the Sherman Act–where courts are more expected to overrule prior decisions based on newer economic theories–and patent (as property law) and contract law where parties rely on settled decisions and Congress is the more appropriate body to overrule prior case rulings.

Justice Kagan authored the opinion; Justices Alito authored a dissent joined by Chief Justice Roberts and Justice Thomas.


The patent at issue (U.S. Patent No. 5,072,856) allows “children (and young-at-heart adults)” to role play as “a spider person” by shooting “webs” (i.e., pressurized string) from the palm of their hand.  The patent owner, Kimble, sought to sell or license his patent to Marvel Entertainment for their Spider-Man character.  Marvel did not buy or license the patent.  But Marvel later sold its own “Web Blaster” toy that used a canister of foam to shoot a web.  The patent owner sued Marvel in 1997 and they reached a settlement agreement in which Marvel bought the patent for a lump sum (about $500,000) and a 3% royalty royalty on Marvel’s future sales of the Web Blaster and similar products. The agreement provided no end to such running royalty payments.

When entering the agreement, neither party had considered the Supreme Court’s Brulotte decision that prevents a patentee from receiving royalties for sales made after the patent expires.  But Marvel did later, and brought a declaratory judgment action seeking a ruling that it need not pay royalties after the patent expired in 2010.  The Brulotte case involved a patent owner who maintained ownership while licensing the patent at a running royalty; in this case, however, the running royalty was part of the sale of the patent to the party making the royalty payments.  The Supreme Court noted that “no one here disputes that Brulotte covers a transaction structured in that alternative way.”

The district court agreed with Marvel and applied Brulotte to preclude royalty payments after the patent expired.  The Ninth Circuit reluctantly affirmed, stating that the Brulotte rule “is counterintuitive and its rationale is arguably unconvincing.”


Following the theme presented, the Supreme Court initially noted that “Patents endow their holders with certain superpowers, but only for a limited time.” (emphasis added)  The Court has “carefully guarded that cut-off date.”

The Court noted that the Brulotte rule may “prevent[] some parties from entering into deals they desire.”  But the Court also noted that “parties can often find ways around Brulotte, enabling them to achieve those same ends.”  For example, parties can (1) amortize payments after the patent expires for products sold during the royalty period, (2) require payment until the last of several licensed patents expire, (3) tie royalties to non-patent rights or (4) make “business arrangements other than royalties–all kinds of joint ventures”:

Yet parties can often find ways around Brulotte, enabling them to achieve those same ends.  To start, Brulotte allows a licensee to defer payments for pre-expiration use of a patent into the post-expiration period; all the decision bars are royalties for using an invention after it has moved into the public domain. A licensee could agree, for example, to pay the licensor a sum equal to 10% of sales during the 20-year patent term, but to amortize that amount over 40 years. That arrangement would at least bring down early outlays, even if it would not do everything the parties might want to allocate risk over a long time frame.  And parties have still more options when a licensing agreement covers either multiple patents or additional non-patent rights.  Under Brulotte, royalties may run until the latest-running patent covered in the parties’ agreement expires.  Too, post-expiration royalties are allowable so long as tied to a non-patent right–even when close related to a patent.  That means, for example, that a license involving both a patent and a trade secret can set a 5% royalty during the patent period (as compensation for the two combined) and a 4% royalty afterward (as payment for the trade secret alone).  Finally and most broadly, Brulotte poses no bar to business arrangements other than royalties–all kinds of joint ventures, for example–that enable parties to share the risks and rewards of commercializing an invention.

The Court stated that the Brulotte rule “is simplicity itself to apply”:

A court need only ask whether a licensing agreement provides royalties for post-expiration use of a patent.  If not, no problem; if so, no dice.

The Court stressed the importance of stare decisis — “the idea that today’s Court should stand by yesterday’s decisions” — particularly in the areas of “property (patents) and contracts (licensing agreements)” where “parties are especially likely to rely on such precedents when ordering their affairs.”  Keeping with the theme, the Supreme Court called this context a “superpowered form of stare decisis” requiring “a superspecial justification to warrant reversing Brulotte.” (emphasis added)

The Court discussed at length the patent owner’s competition law arguments, but found them ill-suited in the patent context.  Basically, competition law under the Sherman Act may be based on economic theory that may change over time and, hence, may require courts to be more inclined to overrule prior decisions where “to overturn [a prior] decision in light of sounder economic reasoning was to take them ‘on [their] own terms.'”.  But patent law interprets statutes where stare decisis is more important and “Congress is the right entity to fix” problematic court rulings, the Court stating:

Although some of [Brulotte’s] language invoked economic concepts, the Court did not rely on the notion that post-patent royalties harm competition.  Nor is that surprising. The patent laws–unlike the Sherman Act–do not aim to maximize competition (to a large extent, the opposite).  And the patent term–unlike the “restraint of trade” standard–provides an all-encompassing bright-line rule, rather than calling for practice-specific analysis.

Catching-Up on House Judiciary Committee’s revised Innovation Act

Posted in Complaints, District Courts, Legislation, Litigation, Non-Practicing Entities

Recently the House Judiciary Committee voted  24-8 to approve a revised version of the Innovation Act.  As we previously discussed, the Innovation Act was re-introduced in the House earlier this year in the same form approved by the entire House at the end of 2013.  The Judiciary Committee recently met to mark-up and vote on the bill.  A summary of the Act’s provisions as well as the approved amendments is provided below.

Demand letters and willful infringement.  The Innovation Act (Sec. 3, beginning at page 18) would prohibit a patent plaintiff from relying on a pre-suit demand letter as evidence of willful infringement if the demand letter did not identify “with particularity the asserted patent,” the “product or process accused,” and “the ultimate parent entity of the claimant” nor explain “with particularity, to the extent possible following a reasonable investigation or inquiry, how the product or process infringes one or more claims of the” asserted patent(s).  The PATENT Act, which was recently recently approved by the Senate Judiciary Committee, contains a similar provision but also goes farther.  Specifically, as we previously discussed, the PATENT Act would expressly regulate demand letters sent in bad faith by patent owners by granting the Federal Trade Commission the express authority to bring enforcement actions against individuals and entities that send such bad faith demand letters.  The Innovation Act simply requires the PTO to conduct a study of bad faith demand letters and their potential impact on the marketplace, with a report to Congress on the findings of the study due within a year.

Heightened infringement pleading standardsSimilar to the PATENT Act, the Innovation Act (§ 281A(a), beginning at page 2) would increase the specificity and information required to plead patent infringement.  Specifically, “unless the information is not reasonably accessible,” a patent plaintiff would be required to identify, in its initial complaint, the patents, the asserted patent claims, the accused infringing products or services, and an element-by-element description of how each accused product or service infringes the asserted patent claims.  As we previously discussed, the Judicial Conference has already taken steps to increase the specificity of patent infringement complaints by amending the Federal Rules of Civil Procedure to eliminate Form 18 “Complaint for Patent Infringement,” which only requires a patent plaintiff to provide a bare recitation for pleading direct patent infringement.  Form 18 will be eliminated in December of this year.  The Federal Circuit also held that, while Form 18 kept it from requiring more specificity in pleading direct infringement, it did not prevent it from requiring more specificity with respect to pleading indirect infringement.  The elimination of Form 18 may allow courts to require more detailed pleadings than the current Rules require.  Given this, the full House might consider whether and to what extent there remains support for the heightened pleading provisions of the reintroduced Innovation Act.

Patent ownership and financial information.  Like Section 3 of the Senate Judiciary Committee’s PATENT Act (§ 281B(b), beginning at page 7), the Innovation Act (Sec. 4(b), beginning at page 22) would require a patent plaintiff to disclose at the outset of an infringement case certain patent ownership and financial interest information to the court, other parties, and the U.S. Patent and Trademark Office (PTO), including the patent assignee, the assignee’s parent entity, any entity with a right to sublicense or enforce the patent, and any entity with a financial interest in the patent.

Disclosure of Standard Setting Obligations.  Simliar to the PATENT Act (§ 281B(b), beginning at page 8), the Innovation Act (Sec. 4, at page 23) would require a patent plaintiff to disclose to the court, other parties and the PTO certain information regarding obligations to Standard Setting Organizations (SSOs).  The Innovation Act would require a patent plaintiff to state “whether a standard-setting body has specifically declared” any of the asserted patents “to be essential, potentially essential, or having potential to become essential to that standard-setting body, and whether the United States Government or a foreign government has imposed specific licesning requirements with respect to such patent.”  As we explained previously, this language is a misnomer, as SSOs generally do not declare patents essential or potentially essential.  Instead, the patent owner declares whether its patent may be essential to an industry standard, usually by way of a a letter of assurance or similar assurance to the SSO.  These assurances often only state that the identified patents might cover a standard and what the patent owner would do as far as licensing the patent if the patent actually is essential to the standard.   And often patent owners submit blanket letters of assurance that do not identify any particular patent. The Senate’s PATENT Act more accurately reflects this practice, requiring a patent plaintiff to state “whether the patent is subject to an assurance made by the [patentee] to a standards development organization to license others under such patent[(s)]”  if “the assurance specifically identified such patent or claims therein” and “the allegation of infringement relates to such standard.”  The PATENT Act would also require a patent plaintiff to state “whether the Federal Government has imposed specific license requirements with respect to” the asserted patents, but not whether a foreign government has imposed specific licensing requirements.

Discovery cost shifting.  The Innovation Act (Sec. 6, beginning at page 34) would require six district courts participating in the patent pilot program to develop rules and procedures governing discovery of core documentary evidence, including rules addressing whether cost should be shifted for such discovery, potential phasing of discovery of electronic communications, and other limits on discovery in patent cases.  The PATENT Act (Sec. 6, beginning at page 19), would authorize the Judicial Conference to develop such rules and procedures.

Customer stay.  Like Section 4 of the PATENT Act (§ 299A(b), beginning at page 13), the Innovation Act (Sec. 5, § 296(b), beginning at page 30) would require district courts to stay patent infringement suits against customers of allegedly infringing products if certain conditions are met.  Specifically, courts would be required to stay a case against a customer if (1) the manufacturer of the accused product or process is a party to the action against the customer or a separate action involving the same patent(s) “related to the same covered product or covered process”; (2) the customer agrees to be bound by the court’s ruling on any issues in common between the customer and manufacturer; and (3) the stay is sought within 120 days after the first complaint for infringement is served or before the first order, whichever is later.   In cases where the customer impleads the manufacturer as a party to the infringement action against the customer, a district court would be required to stay the portion of the case against the customer if the manufacturer and the customer consent in writing to the stay.  “In any other case in which the covered manufacturer did not consent in writing to the stay, the court may not grant the motion to stay if the stay would be inconsistent with an indemnity or other agreement between the covered customer and the covered manufacturer,” or “if the covered manufacturer shows that the covered customer is in a better position to understand and defend against the claims of infringement.”

As we previously discussed, the Federal Circuit’s decision in In re Nintendo may impact this provision.  In Nintendo, the Federal Circuit ordered a district court to stay claims against defendant retailers accused of selling an infringing product in favor of letting the manufacturer of the accused product and the patentee litigate the merits of the infringement claims.  The district court was ordered to sever the claims against the retailers from those against the manufacturer, and to transfer the case against the manufacturer to the Western District of Washington, where the manufacturer’s U.S. operations are based.

Prevailing party fee/cost shifting.  Similar to Section 7 of the PATENT Act (§ 285(a), beginning at page 24) the Innovation Act (§ 285(a), beginning at page 5) also includes fee and cost shifting provisions, although the competing bills take a different approach.  Under the PATENT Act, a district court would first be required to determine “whether the position of the non-prevailing party was objectively reasonable in law and fact” as well as “whether the conduct of the non-prevailing party was objectively reasonable.”  Only if the court finds that the position of the non-prevailing party was “not objectively reasonable in law or fact or that the conduct of the non-prevailing party was not objectively reasonable” is the court required to “award reasonable attorney fees to the prevailing party unless special circumstances would make an award unjust.”

The Innovation Act, however, would set a default rule that would require fees and costs to be awarded to the prevailing party unless the positions of the non-prevailing party are shown to be objectively reasonable:

The court shall award, to a prevailing party, reasonable fees and other expenses incurred by that party in connection with a civil action in which any party asserts a claim for relief arising under any Act of Congress relating to patents, unless the court finds that the position and conduct of the nonprevailing party or parties were reasonably justified in law and fact or that special circumstances (such as severe economic hardship to a name inventor) make an award unjust.

As we previously discussed, recent Supreme Court decisions have relaxed the standard for showing a case to be “exceptional,” thereby permitting the prevailing party to collect their reasonable attorney fees, from “clear and convincing evidence” to the lower preponderance of the evidence standard.  The high Court also changed the standard of review of fee awards in patent cases from de novo to the more relaxed “abuse of discretion” standard which grants much more deference to the district court’s decision.  The House and the Senate may consider whether statutory fee shifting provisions are necessary given this recent Supreme Court jurisprudence.

The venue amendment.  One of the amendments that was approved during mark-up of the Innovation Act would change the rules governing where a patent infringement action or an action seeking a declaratory judgment of non-infringement or invalidity may be brought.  Under the Act’s provision, such cases may only be filed where: (1) the defendant has its principal place of business or is incorporated; (2) the defendant has committed an act of infringement and has a regular and established physical facility; (3) the defendant has agreed or consented to be sued; (4) the invention claimed in a patent-in-suit was conceived or actually reduced to practice; (5) significant research and development of an invention claimed in a patent-in-suit occurred at a regular and established physical facility; (6) a party has a regular and established physical facility that such party controls and operates and has (a) engaged in management of significant research and development of an invention claimed in a patent-in-suit, (b) manufactured a product that embodies an invention claimed in the patent-in-suit, or (c) implemented a manufacturing process that embodies an invention claimed in a paten-in-suit; or (7) for foreign defendants that do not meet (1) or (2) above, wherever personal jurisdiction may lie over them.

Supporters of this amendment indicated that it was designed to restore limits on venue in patent cases and make it more difficult for patentees to file infringement suits in district courts that they perceive as more favorable to patent owners but which are inconvenient for accused infringers who often do not have any real, substantial contacts with such fora.  The House Judiciary Committee’s website specifically states as follows:

Restores Congress’s intent that patent infringement suits only be brought in judicial districts that have some reasonable connection to the dispute.  Since 1987, Congress has regulated the venue in which patent actions may be brought.  These limits protect parties against the burden and inconvenience of litigating patent lawsuits in districts that are remote from any of the underlying events in the case.  In 1990, the U.S. Court of Appeals for the Federal Circuit ‘re-interpreted’ that statute in a way that robbed it of all effect.  The Innovation Act corrects the Federal Circuit’s error, and restores the congressional purpose of placing some reasonable limits on the venue where a patent action may be brought.

At this time, the House has not scheduled a full vote on the Innovation Act.

Federal judge permits MPHJ’s suit challenging Vermont’s bad faith patent demand letter law to proceed

Posted in Complaints, Court Orders, District Courts, Legislation, Litigation, Non-Practicing Entities

We previously discussed the Vermont attorney general’s enforcement action against MPHJ Technology Investments, LLC, a non-practicing entity that has recently been the subject of regulatory scrutiny.  The attorney general’s complaint, filed in Vermont state court in early May of 2013, alleges that MPHJ’s patent assertion conduct directed toward Vermonters violates the state’s Consumer Protection Act.  The state seeks permanent injunctive relief, an award of restitution to Vermont businesses that were damaged by MPHJ’s alleged conduct, civil penalties of up to $10,000 for each violation of the Consumer Protection Act, and costs.

A few weeks after the suit was filed, Vermont’s governor signed into law the Bad Faith Assertions of Patent Infringement Act (Bad Faith Demand Act) which, as its title suggests, attempts to regulate patent demand letters sent in bad faith.

After several unsuccessful attempts by MPHJ to remove the attorney general’s action to federal court (see our August 11, 2014 post), MPHJ filed a separate action against the attorney general in federal district court seeking a declaration that the Bad Faith Demand Act is constitutionally invalid or federally preempted as well as a declaration that the Vermont Consumer Protection Act — as it is being applied by the attorney general in the state court action against MPHJ — is constiutionally invalid or federally preempted.  MPHJ also sought an injunction prohibiting the attorney general from prosecuting the state court action against it.

Recently, the federal judge presiding over MPHJ’s case granted in part and denied in part the attorney general’s motion to dismiss MPHJ’s amended complaint.  A summary of the Bad Faith Demand Act, MPHJ’s claims, the motion to dismiss briefing and the court’s decision is provided below.

The Bad Faith Demand Act.  The Bad Faith Demand Act provides that “[a] person shall not make a bad faith assertion of patent infringement.”  The statute permits a court to consider several factors “as evidence that a person has made a bad faith assertion of patent infringement,” including, but not limited to:

  • The demand letter does not contain the patent number, the name and address of the patent owner(s) and assignee(s), or “factual allegations concerning the specific areas in which the” recipient’s “products, services, and technology infringe”;
  • The demand letter fails to include the above-listed information, the recipient of the letter requests it, and the patentee fails to provide it within a reasonable period of time;
  • The patent owner fails to compare the claims to the recipient’s products, services and technology prior to sending the demand letter, or such analysis was “done but does not identify the specific areas in which the” recipient’s products, services and technology are covered;
  • The demand letter demands payment of a license fee or response within an “unreasonably short period of time”;
  • The patentee “offers to license the patent for an amount that is not based on a reasonable estimate of the value of the license”;
  • The claim “of patent infringement is meritless, and  the person knew, or should have known, that the claim or assertion is meritless”‘; and
  • The patentee, its subsidiaries or affiliates “have previously filed or threatened to file” a lawsuit “based on the same or similar claim of patent infringement” and those threats lacked the information listed above (e.g., the patent number, name and address of the patent owner and assignee(s), etc.) and a court found the claims to be meritless.

In analyzing whether patent assertion conduct was done in bad faith, the Bad Faith Demand Act also permits a court to consider whether such conduct was “deceptive.”  The court may also consider “[a]ny other factor [it] finds relevant.”  The facial breadth of this language may give a court discretion to consider whether a standard essential patent owner has informed the recipient that the asserted patents have been declared essential by the patent owner to a standard setting organization (SSO) and/or whether the patent owner has promised to license the patents on reasonable and non-discriminatory (RAND) terms.

Conversely, the Bad Faith Demand Act also lists several factors that may show that patent assertion conduct was not committed in bad faith.  Among the factors that a court may consider are:

  • The demand letter contains the patent number, the name and address of the patent owner(s) and assignee(s), and “factual allegations concerning the specific areas in which the” recipient’s “products, services, and technology infringe”;
  • Where the demand letter lacks such information and the recipient requests it, the patent owner provides it within a reasonable time;
  • The patent owner “engages in a good faith effort to establish that the target has infringed the patent and to negotiate an appropriate remedy”;
  • The patent owner “makes a substantial investment in the use of the patent or in the production or sale of a product or item covered by the patent”;
  • The patent owner is the inventor or joint inventor of the asserted patent, the original assignee, an institution of higher education or a technology transfer organization owned or affiliated with an institution of higher education;
  • The patent owner has engaged in “good faith business practices in previous efforts to enforce the patent” or a “substantially similar patent” or successfully enforced the patent, or a substantially similar patent, through litigation”; and
  • Any other factor the court deems relevant.

The Vermont attorney general is empowered to bring enforcement actions for restitution, civil penalties and injunctive relief against violators of the statute.

Additionally, a recipient of a bad faith demand letter or target of other bad patent assertion conduct may bring an action and, if they prevail, may be awarded equitable relief, damages, costs and attorneys fees, exemplary damages in an amount equal to $50,000 or three times the total damages, costs, and fees, whichever is greater.

As an interim remedy, the Bad Faith Demand Act also provides that if a recipient of a demand letter or target of other patent assertion conduct establishes “a reasonable likelihood that a person has made a bad faith assertion of patent infringement” in violation of the statute, “the court shall require the person [making the demand] to post a bond in an amount equal to a good faith estimate of the target’s costs to litigate the claim and the amounts reasonably likely to be recovered” under the civil remedies provisions of the statute discussed above, “conditioned upon payment of any amounts finally determined to be due to the target” of the patent assertion conduct.  The bond may not exceed $250,000 and the court may waive it “if it finds [that] the person [making the demand] has available assets equal to the amount of the proposed bond or for other good cause shown.”

MPHJ’s Complaint.  In September of 2014, MPHJ filed a complaint against the attorney general challenging the constitutionality of the Bad Faith Demand Act as well as the attorney general’s application of Vermont’s Consumer Protection Act in the state court action against MPHJ.  In response to the attorney general’s motion to dismiss, MPHJ filed an amended complaint.

Count I-A seeks a declaration that the Bad Faith Demand Act is invalid under, or preempted by, the First and Fourteenth Amendments to the United States Constitution.  MPHJ also alleges that the Bad Faith Demand Act is preempted by Title 35 of the United States Code and the Federal Circuit’s decisions thereunder, in that it “permits liability to attach to patent owners, including injunctive and monetary liability, without a requirement that the plaintiff prove that the conduct at issue was both objectively baseless and subjectively baseless pursuant to the standard outlined in” the Federal Circuit’s 2004 decision in Globetrotter Software, Inc. v. Elan Computer Group, Inc.

Count I-B seeks a declaration that the Vermont Consumer Protection Act, as it is being applied by the attorney general in the state action against MPHJ, is also invalid under, or preempted by, the First and Fourteenth Amendments to the United States Constitution.  Specifically, MPHJ alleges that the attorney general “has [asserted] and currently asserts that the Vermont Consumer Protection Act may be applied against correspondence related to patent enforcement without pleading or proof that such conduct is objectively baseless and subjectively baseless.”  “As a result, as applied, the Vermont Consumer Protection Act is invalid or preempted under the First, Fifth and Fourteenth Amendments, and the Supremacy and Patent Clauses of the U.S. Constitution, and Title 35 of the U.S. Code.”

The other counts in MPHJ’s amended complaint assert causes of action for, inter alia, a declaration that the Bad Faith Demand Act and the Vermont Consumer Protection Act, as applied, are invalid under or preempted by the Dormant Commerce Clause as well as a count for attorneys fees under Section 1988 of Title 42 of the United States Code for the attorney general’s allegedly unconstitutional conduct.

Motion to dismiss to briefing.

The Vermont attorney general moved to dismiss MPHJ’s First Amended Complaint, arguing that the court should abstain from hearing any of MPHJ’s challenges to the constiutionality of the Vermont Consumer Protection Act because those claims could be litigated in the state court action as affirmative defenses or counterclaims.

The attorney general also argued that MPHJ lacked standing to challenge the constitutionality of the Bad Faith Demand Act because those claims were based on MPHJ’s intention to send demand letters in the future and, according to the attorney general, such potential future conduct was too speculative to support standing.  Even if MPHJ could establish standing, its claims were not ripe because the allegations of MPHJ’s potential future conduct were too “cursory.”

MPHJ opposed the motion.  MPHJ argued that, because the state court action did not involve claims under the Bad Faith Demand Act, abstention was not proper and MPHJ is entitled to pursue its federal challenges to the Bad Faith Demand Act.  MPHJ argued further that its challenges to the Bad Faith Demand Act were both ripe and that it has standing to pursue them because MPHJ has “alleged that Defendant’s conduct represents a credible threat of suit that chills the exercise of MPHJ’s First Amendment rights” to enforce its patents by sending demand letters.

With respect to its challenges to the attorney general’s application of the Consumer Protection Act in the state court action, MPHJ argued that abstention was not proper because, inter alia, the state does not have an important interest in deciding MPHJ’s claims.  Specifically, MPHJ argued that “it is clear that dominion over patents, and their enforcement, is not an attribute of sovereignty retained by the American states.”

The attorney general filed a reply, arguing, inter alia, that even substantial claims of federal preemption do not warrant federal court action, and that MPHJ should be required to litigate those claims in the state court action.  The attorney general also argued that MPHJ had not alleged that its asserted patent claim was valid and infringed and, therefore, MPHJ lacked standing to challenge the Bad Faith Demand Act based on potential future demand letters involving the patent claim at issue.

MPHJ filed a supplemental opposition identifying new authority regarding the attorney general’s abstention arguments that MPHJ contended required the denial of the attorney general’s motion.

The Court’s decision.  The court granted the attorney general’s motion to the extent it related to MPHJ’s challenges to the AG’s application of the Consumer Protection Act in the state action, deciding to abstain in favor of having those challenges resolved by the state court.  “The constiutionality of the [Consumer Protection Act] being enforced can be determined by the state courts…”

The court, however, denied the attorney general’s motion to dismiss MPHJ’s challenges to the Bad Faith Demand  Act.  “As there has been no civil enforcement action under the [Bad Faith Demand Act], abstention with respect to that statute is unwarranted.”

The court also rejected the attorney general’s argument that MPHJ lacked standing to challenge the Bad Faith Demand Act because the attorney general has not brought any enforcement action under that statute.  According to the court, the lack of any enforcement action was not dispositive to the standing issue.  Rather, because MPHJ “has made plain its intention to send enforcement letters in the future” and that the attorney general, in an interview, discussed the Bad Faith Demand Act’s intentions “to deter patent trolling in Vermont” and also mentioned MPHJ specifically in that same interview, “future enforcement under the [Bad Faith Demand Act] seems neither conjectural nor hypothetical.”  MPHJ, according to the court, had established “a credible threat of enforcement” sufficient to give it standing to challenge the constitutionality of the Bad Faith Demand Act and that such claims were ripe for review.

As we previously discussed, the Senate Judiciary Committee recently approved the PATENT Act, and that bill will soon go to the full Senate floor.  The House Judiciary Committee has also approved competing patent reform legislation that will be voted on by the full House.  Both of these bills contain provisions that would regulate patent demand letters and other patent assertion conduct.  Should either bill or revised versions of them be enacted into law, Vermont’s Bad Faith Demand Act as well as other states’ laws that attempt to regulate patent assertion conduct may be expressly pre-empted, likely mooting MPHJ’s constitutional challenges.  MPHJ’s claims for monetary damages, however, might not be mooted.

En Banc Federal Circuit broadens what constitutes a means-plus-function limitation (Williamson v. Citrix)

Posted in Appeals, Litigation, Patent Alerts

Yesterday, the Federal Circuit issued a decision in Williamson v. Citrix that includes an en banc portion that broadens the circumstances in which claim limitations may be deemed means-plus-function limitations.  This appears to be an effort by the court to address concerns that some patent claims directed to computer-implemented or software inventions may be too vague or over broad based on claim limitations directed to general functionality, rather than specific structure or algorithms.  The challenged patent claims in this instance did not provide algorithms or the such in the specification to perform the functions of the limitation construed to be a means-plus-function claim, so the patent claims were held invalid as being indefinite.

So prepare to submit your supplemental authority to the court and revise your claim construction contentions and briefs, because this is a game-changer.  Some computer-implemented or software patent claims drafted in functional language without any algorithm or other structure disclosed in the specification for performing that function may be invalidated.  On the other hand, some computer-implemented or software patent claims with functional language that have algorithms or other structure disclosed in the specification might be saved from an Alice challenge that the claim is invalid under § 101 for attempting to patent an idea (see our June 19, 2014 post on the Supreme Court’s Alice decision).

Summary.  In sum, the Federal Circuit overruled prior precedent concerning a “strong” presumption that claim limitations that do not use the term “means” are not means-plus-function limitations absent “a showing that the limitation essentially is devoid of anything that can be construed of structure.”  Observing that the court seldom held limitations to be means-plus-function limitations under that heightened burden, the court ruled en banc that the heightened burden was “unjustified”, “unwarranted, is uncertain in meaning and application, and has the inappropriate practical effect of placing a thumb on what should otherwise be a balanced analytical scale.”  The Federal Circuit en banc, thus, stated a new standard that is to be based on means-plus-function law that existed before the “strong” presumption:

Henceforth, we will apply the presumption as we have done prior to Lighting World [v. Birchwood Lighting, 382 F.3d 1354 (Fed. Cir. Sep. 3, 2004)], without requiring any heightened evidentiary showing and expressly overrule the characterization of that presumption as “strong.”  We also overrule the strict requirement of “a showing that the limitation essentially is devoid of anything that can be construed as structure.”

The standard is whether the words of the claim are understood by persons of ordinary skill in the art to have a sufficiently definite meaning as the name for the structure. Greenberg, 91 F.3d at 1583.  When a claim lacks the word “means”, the presumption can be overcome and § 112 par. 6 [or § 112(f) for post AIA patents] will apply if the challenger demonstrates that the claim term fails to “recite sufficiently definite structure” or else recites “function without reciting sufficient structure for performing that function.”  Watts, 232 F.3d at 880.  The converse presumption remains unaffected: “use of the word ‘means’ creates a presumption that § 112, ¶ 6 applies.” Personalized Media, 161 F.3d at 703.

In this case, the court found that the limitation at issue, which did not use the term “means” (but used the generic word “module”), was nonetheless subject to interpretation as a means-plus-function limitation.  Such means-plus-function limitations require disclosure in the patent specification of adequate “corresponding structure” to perform the claimed function.  The court found that no such structure was disclosed, because the structure in this case would be a special purpose computer that requires more than disclosing a “general purpose computer or microprocessor”; rather, the specification must “disclose an algorithm for performing the claimed function.”  The court thus held the patent invalid as being indefinite under § 112, ¶ 2 (what is now § 112(b) for post-AIA patents).

AIA STATUTORY NOTE:  The America Invents Act (AIA) took effect on September 16, 2012.  Prior to the AIA, the patent statute addressed means-plus-function limitations in the sixth-paragraph of unenumerated 35 U.S.C. § 112 — hence, referred to as § 112, ¶ 6 means-plus-function limitations.  The AIA added enumeration to § 112 such that means-plus-function limitations are now addressed in § 112(f) (but otherwise unaltered).  Similarly, the definiteness requirement was in the second paragraph of pre-AIA § 112 — hence, referred to as § 112, ¶ 2 indefiniteness validity challenge.  The definiteness requirement in post-AIA is now found in § 112(b).  Which version of § 112 to use depends on whether the application that resulted in the patent-at-issue was filed before Sep. 16, 2012 (pre-AIA) or on/after that date (post-AIA).

Because the application for the patent at issue was filed before Sep. 16, 2012, the court (and hence this post) refers to § 112, ¶ 6.

EN BANC NOTE:  Almost all of this decision is by only the three-judge panel of Judges Moore, Linn (author) and Reyna (concur/dissent).  The en banc court ruled on just one section of the decision:  Section II.C.1 concerning how to determine whether a limitation is a means-plus-function limitation subject to § 112, ¶ 6.  The en banc court consisted of Chief Judge Prost and Judges Newman (dissent), Lourie, Linn, Dyk, Moore, O’Malley, Reyna, Wallach, Taranto, Chen and Hughes.


The trustee for patent owner At Home Corporation Bondholders’ Liquidating Trust filed suit against Citrix, Microsoft, Adobe, Cisco, IBM and others for infringing U.S. Pat. No. 6,155,840 directed to “distributed learning” that “utilize[s] industry standard computer hardware and software linked by a network” to provide a “virtual classroom.”

The means-plus-function issue concerned the “distributed learning control module” limitation in independent Claim 8:

a distributed learning control module for receiving communications transmitted between the presenter and the audience member computer systems and for relaying the communications to an intended receiving computer system and for coordinating the operation of the streaming data module.

The district court’s claim construction order ruled that this limitation was a means-plus-function limitation under § 112, ¶ 6, the patent specification failed to disclose necessary algorithms for performing all of the three claimed functions and, thus, Claim 8 and its dependent claims were invalid as being indefinite under § 112, ¶ 2.


Standard of Review.  As an initial matter, the Federal Circuit ruled that, “[b]ecause the district court’s claim constructions in this case were based solely on the intrinsic record, the Supreme Court’s recent decision in Teva does not require us to review the district court’s claim construction any differently than under the de novo standard we have long applied.” (see our Jan. 23, 2015 post on the Teva decision).  This means that the Federal Circuit reviewed the issue as a matter of law without being required to defer to the district court’s decision on factual issues that otherwise might have arisen if the claim construction involved evidence beyond the patent specification and file history.  (Note that the patent owner did submit technical expert testimony, but the district court did not comment on that testimony so the Federal Circuit did not have a decision thereon to which it would defer).

Standard To Determine Whether Claim Limitation Is A Means-Plus-Function Limitation.  This is the only portion of the decision considered en banc, which was required on this issue because the panel by itself could not overrule prior precedent on this issue.  The Federal Circuit started, of course, with the statutory language at issue:

An element in a claim for a combination may be expressed as a means or step for performing a specified function without the recital of structure, material, or acts in support thereof, and such claim shall be construed to cover the corresponding structure, material, or acts described in the specification and equivalents thereof. [35 U.S.C. § 112, ¶ 6]

The court’s 1998 Personalized Media decision had created a rebuttable presumption that § 112, ¶ 6 applies to a claim limitation if the  term “means” is used in the limitation, which patent drafters traditionally used to denote means-plus-function limitations.  Absent the term “means”, there is a rebuttable presumption that § 112, ¶ 6 does not apply.  The presumptions are rebuttable and, even without the word “means”, § 112, ¶ 6 applies if “the words of the claim are understood by a persons of ordinary skill in the art to have a sufficiently definite meaning as the name for structure.”  The presumption is overcome “if the challenger demonstrates that the claim term fails to ‘recite sufficiently definite structure’ or else recites ‘function without reciting sufficient structure for performing that function.'”

But in its 2004 Lighting World decision, the Federal Circuit made it harder to overcome the presumption,  stating that “the presumption flowing from the absence of the word ‘means’ is a strong one that is not readily overcome.” [emphasis in original]  The court’s 2012 Flo Healthcare decision rose the bar even further by requiring “a showing that the limitation essentially is devoid of anything that can be construed as structure” before § 112, ¶ 6 would apply in the absence of the word “means” in the claim limitation.  As a result, the court “seldom held that a limitation without recitation of ‘means’ is a means-plus-function limitation.”  The Federal Circuit en banc, thus, overruled that line of decisions as discussed and quoted in the summary at the beginning of this post.

“Distributing Learning Control Module” Is A Means-Plus-Function Limitation.  The court found that the entirety of the “distributing learning control module” limitation is “in a format consistent with traditional means-plus-function claim limitation,” but “replac[ing] the term ‘means’ with the term ‘module’ and recit[ing] three functions performed by the ‘distributed learning control module.” The panel found that the term “module” is “a well-known nonce word that can operate as a substitute for ‘means’ in the context of § 112, para. 6,” stating:

Generic terms such as “mechanism,” “element,” “device,” and other nonce words that reflect nothing more than verbal constructs may be used in a claim in a manner that is tantamount to using the word “means” because they “typically do not connote sufficiently definite structure” and therefore may invoke § 112, para. 6.

Here, the word “module” does not provide any indication of structure for providing the same specified function as if the term “means” had been used.  Indeed, [the patent-owner] acknowledges that “the term ‘module,’ standing alone is capable of operating as a ‘nonce word’ substitute for ‘means.'”

The court found that the prefix “distributed learning control” modifying the word “module” does not “describe a sufficiently definite structure” and the specification uses that term without providing “any structural significance to the term.”  Further, the claim limitation does not describe how the module “interacts with other components … in a way that might inform the structural character of the limitation-in question or otherwise impart structure to” the limitation.  Further, the patent owner’s expert testimony that, based on the patent specification, a skilled artisan “would know exactly how to program” a computer to perform the function does not “create structure where none otherwise is disclosed.”

The court, therefore, ruled that the “distributed learning control module” claim limitation is a means-plus-function limitation to which § 112, ¶ 6 applies .

No Corresponding Structure Disclosed.  The court ruled that the patent specification did not disclose sufficient structure corresponding to the claimed function of the means-plus-function limitation. In this case, there were three claimed functions — (1) receiving communications, (2) relaying the communications and (3) coordinating the operation — and “the patentee must disclose adequate corresponding structure to perform all of the claimed functions.”  The court focused on the third function of coordinating the operation of the streaming data module.  The court described the inquiry for finding corresponding structure, an invalidity for failing to do so, as follows:

Structure disclosed in the specification qualifies as “corresponding structure” if the intrinsic evidence clearly links or associates that structure to the function recited in the claim.  Even if the specification discloses corresponding structure, the disclosure must be of “adequate” corresponding structure to achieve the claimed function.  Under 35 U.S.C. § 112, paras. 2  [indefiniteness] and 6 [means-plus-function], therefore, if a person of ordinary skill in the art would be unable to recognize the structure in the specification and associate it with the corresponding function in the claim, a means-plus-function clause is indefinite.

In this case, a special purpose computer is needed to implement the claimed functions, and the disclosure should provide an algorithm for the special purpose computer to perform the function:

The written description of the ‘840 patent makes clear that the distributed learning control module cannot be implemented in a general purpose computer, but instead must be implemented in a special purpose computer–a general purpose computer programmed to perform particular functions pursuant to instructions from program software.  A special purpose computer is required because the distributed learning control module has specialized functions as outlined in the written description.  In cases such as this, involving a claim limitation that is subject to § 112, para. 6 that must be implemented in special purpose computer, this court has consistently required that the structure disclosed in the specification be more than simply a general purpose computer or microprocessor.  We require that the specification disclose an algorithm for performing the claimed function. The algorithm may be expressed as a mathematical formula, in prose, or as a flow chart, or in any other manner that provides sufficient structure.

In this case, the specification merely disclosed functions of the “distributed learning control module” without setting forth “an algorithm for performing the claimed functions.”  Further, figures in the patent showing representative displays on a computer did not disclose an algorithm for performing the claimed function.  Further, this failure to disclose structure could not be cured by expert testimony about whether one skilled in the art could create structure to perform the function:

The testimony of one of ordinary skill in the art cannot supplant the total absence of structure from the specification.  The prohibition against using expert testimony to create structure where none otherwise exists is a direct consequence of the requirement that the specification adequately disclose corresponding structure.  Thus, the testimony of [technical expert] Dr. Souri cannot create structure where none otherwise exits.

The patent claims were thus held invalid for being indefinite based on “fail[ing] to disclose any structure corresponding to the ‘coordinating’ function of the ‘distributed learning control module.'”

ZTE enjoined from further breaching NDA entered for settlement discussions (Vringo v. ZTE)

Posted in Court Orders, Litigation

Judge Kaplan of S.D. New York recently issued a preliminary injunction to enjoin ZTE from further disclosing information subject to a non-disclosure agreement (NDA) that ZTE had entered with Vringo to potentially settle worldwide patent litigation between them that concern FRAND-obligated standard essential patents that Vringo had purchased from Nokia.  This is an interesting case to read when considering NDAs for purposes of settlement discussions in general, as well as when they involve SEPs.


In 2013, Vringo and ZTE agreed to meet to discuss settlement, and they entered an NDA for those discussions “to create an environment for productive discussions with good faith settlement offers.”  During their December 10, 2013 meeting, patent owner Vringo made a 40-page presentation marked confidential under the NDA that, among other things, included Vringo’s settlement proposal.  No settlement was reached.  Soon thereafter, on February 21, 2014, ZTE started an antitrust lawsuit in China claiming that Vringo abused its market position by refusing to license its essential patents on FRAND terms.  ZTE’s complaint relied on confidential information under the NDA and attached Vringo’s confidential 40-page presentation from their settlement discussions.  Vringo did not find out about this until four months later when it received a copy of the complaint from the Chinese court.

In April 2014, ZTE also filed a complaint against Vringo with the European Commision (“EC”).  Vringo had an opportunity to respond to the EC complaint.  So Vringo reached-out to ZTE about getting a waiver under the NDA to allow Vringo to disclose information to the EC in response to the Complaint.  ZTE did not reply before Vringo’s response time, so Vringo filed redacted materials with the EC.  A week after that, ZTE responded it would agree to such a waiver for information directly relevant to the EC complaint and only if ZTE also was permitted to do so.

Later, in June 2014, Vringo learned for the first time about ZTE’s Chinese complaint and disclosure of confidential information subject to the NDA.  Vringo then filed this suit for breach of the NDA.


At the outset of the case, Judge Kaplan had ruled that “the pleadings establish the existence and terms of the NDA and defendants breach thereof.”  The instant decision ruled on Vringo’s motion for a preliminary injunction that would enjoin ZTE from further breaching the NDA as well as seeking to enjoin ZTE from further pursuing the Chinese action.  Judge Kaplan applied the four typical factors used to determine whether a preliminary injunction is warranted:

  1. Vringo is likely to ultimately succeed on the merits of its breach of contract claim;
  2. Vringo is likely to suffer irreparable harm if preliminary injunctive relief is not granted;
  3. The balance of the equities tip in Vringo’s favor over ZTE; and
  4. Entering an injunction is in the public interest.

Vringo Likely To Succeed.  Judge Kaplan ruled that Vringo is likely to succeed in proving that ZTE breached the NDA, especially given that he already ruled as such on the pleadings.

ZTE argued that Chinese law should govern here and, under Chinese law, ZTE was required to provide the information as part of its complaint to the Chinese court.  Judge Kaplan disagreed.  No law required ZTE to bring the complaint in the first instance.  Further, the Chinese procedural rule requiring a complaint to specy “the claim and its supporting facts and grounds” and “evidence and the source thereof” did not require ZTE to submit the confidential information and ZTE’s assertion otherwise “is nothing more than gamesmanship.”  Further, the NDA expressly states that it should be govern by the laws of New York and there was sufficient contacts with New York to enforce that provision:

Vringo maintains its principal place of business in New York and sought protection under its laws when entering into the NDA.  ZTE knew this, executed the NDA, and then sent it back to Vringo in New York.  The parties, in agreeing to have the law of New York govern their contract, selected the laws of a State that has a reasonable relationship and significant contacts to the contract and that choice must be enforced by this Court.

Judge Kaplan also rejected ZTE’s argument that the NDA is unenforceable under New York law as “an agreement to suppress evidence.”  The NDA was a permissible agreement between private parties about use of information in private litigation.  New York has a strong public policy encouraging settlement and “[t]here can be no doubt that the NDA was entered into for the explicit purpose of facilitating candid settlement discussions.”  Further, the NDA permits disclosure of confidential information “upon a request from a governmental entity or third party whether by a discovery request or a subpoena.”  Thus, “it was entirely lawful for Vringo and ZTE to agree that they would not use information exchanged in settlement discussions in any judicial proceedings.”

Vringo Threatened With Immediate Irreaparable Harm.  Judge Kaplan found that the irreparable harm requirement was met because “Vringo, in the absence of a preliminary injunction, probably would suffer injury in the future that could not be undone even if it prevails in this action.”  Harm from disclosure is imminent absent an injunction, because ZTE continues to believe that an NDA cannot prohibit submitting evidence of an antitrust violation.  ZTE did not start complying with”the clear and unequivocal terms of the NDA “until after the court entered a TRO.

Judge Kaplan found that continued disclosure by ZTE of confidential information would cause irreparable harm to Vringo’s business by impacting licensing negotiations with other parties, stating:

Vringo’s business depends substantially on the value of its patent portfolio, which it licenses to third parties.  The disclosure of Vringo’s Confidential Information, including its proposal to settle years of ZTE’s alleged patent infringement, would impact the prices others would pay to obtain licenses as well as the prices its competitors would offer for their licenses.  Indeed, once such commercially-sensitive information becomes public knowledge, it can “not be made secret again.”  In short, the disclosure of that information would have a lasting and immeasurable harm to Vringo’s business.

Balance of the Equities Favor Vringo.  Judge Kaplan found that Vringo would be irreparably harmed absent an injunction by ZTE continuing to disclose Vringo’s confidential information.  In contrast, entering an injunction would prevent ZTE from not disclosing information that ZTE had agreed in the NDA that it would not to disclose.

Public Interest Favors Injunction.  Judge Kaplan found that the public interest favors the preliminary injunctive relief he would give, which would enjoin ZTE from further disclosing confidential information but would not enjoin the Chinese proceedings themselves.  Thus, international comity concerns are addressed, because the injunction would not prevent the Chinese court from evaluating its antitrust action.

Scope of Preliminary Injunction.  Judge Kaplan would not enjoin ZTE from continuing with its Chinese antitrust action.  A key reason was that a determination that ZTE breached the NDA in this case would not resolve the Chinese action, a key factor when a U.S. court determines whether to enjoin a foreign action.

Judge Kaplan also would not order ZTE to withdraw the information it submitted in the Chinese action, finding that Vringo — while close — had not met its burden to obtain such affirmative or “mandatory” injunctive relief at this early stage in the case.  But he remained open to a mandatory injunction at the end or later stages of the case.

Judge Kaplan ultimately entered a preliminary injunction that prohibits ZTE from further disclosing any more confidential information.