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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).

Background

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).

Decision

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.

Background

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.”

Decision

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.

Background

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.

Decision

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.

Background

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.

Decision

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.

Senate Judiciary Committee approves PATENT Act

Posted in Federal Trade Commission, Legislation, Non-Practicing Entities

Yesterday, we reported on the manager’s amendments to the Protecting American Talent and Entrepreneurship Act, or “PATENT Act,” a bi-partisan patent reform bill introduced by Senator Leahy and several other Senators.  After two additional amendments by members of the Senate Judiciary Committee during yesterday’s mark-up session, the committee approved the bill by a vote of sixteen (16) to four (4).  The two amendments are discussed below.

Senators Feinstein and Tillis’ amendment made changes to the Act’s provisions governing pre-suit notification of infringement by patentees to accused infringers.  The amendment prohibits such pre-suit notification from containing, absent “consent of the intended recipient,” a “request for, demand for, or offer to accept a specific monetary amount in exchange for a license, settlement, or similar agreement to resolve allegations of patent infringement” or “a specific monetary amount demanded based on the cost of legal defense in a lawsuit concerning any asserted claim or claims.”

Senator Cornyn’s amendment permits certain “institution[s] of higher education” and employees thereof to qualify for micro entity status when applying for patents and, therefore, pay lower patent application fees.

Senator Coons, who has also introduced proposed patent reform legislation known as the STRONG Act, proposed several amendments to the PATENT Act, but none were approved.  One of his proposed amendments would have required petitioners in inter partes and post-grant reviews to prove that a previously issued patent claim is invalid “by clear and convincing evidence” and a proposed amended claim invalid by a preponderance of the evidence.  This same language is in Senator Coons’ proposed STRONG Act.  Senator Coons’ other proposed amendments would have exempted certain claims and parties from the Act’s provisions.  For example, one proposed amendment would have rendered inapplicable the heightened patent infringement pleading standards in the Act to patent plaintiffs that have “never previously brought a civil action alleging infringement of any patent” and who also allege “infringement of a patent that has never been the subject of litigation in any previous civil action.”

Senator Durbin proposed an amendment that would have exempted inventors, joint inventors, “or in the case of a patent filed by and awarded to an assignee of the original inventor or joint inventor, the original assignee of the patent” from the heightened patent infringement pleading standards in the PATENT Act.  This amendment was also not approved by the committee.

Prior to the PATENT Act going to the full Senate for a vote, it is expected that members of the committee will make revisions to Section 11’s provisions governing the amendment of patent claims in inter partes and post grant review proceedings.

Revised version of Senate patent reform bill released

Posted in Federal Trade Commission, Legislation, Non-Practicing Entities

On Tuesday, a proposed Manager’s Amendment was released for the Senate’s pending PATENT Act bill.  Following is a recap of the recent wave of patent legislation proposals this year.

Innovation Act.  Since 2013, the House and the Senate have considered various forms of patent reform legislation that attempt to address perceived patent litigation abuse.  See our Dec. 9, 2013 post.  In February, the House Judiciary Committee Chairman Bob Goodlatte (R-Va.) reintroduced the Innovation Act, which is identical to the bill the House passed in December of 2013 by a vote of 325-91.  A summary of the Innovation Act’s provision is in our Feb. 11, 2015 post.

TROL Act.  In April, the House Subcommittee on Commerce, Manufacturing and Trade — a subcommittee of the House’s Energy and Commerce Committee — voted to send a separate proposed patent legislation bill to the full committee for a vote.  This bill, known as the Targeting Rogue and Opaque Letters Act, or “TROL Act,” would expressly render misleading demand letters sent by patent holders to accused infringers a violation of Section 5 of the Federal Trade Commission Act.  Under the bill’s provisions, a demand letter that states or represents “that the recipients are or may be infringing” would be deemed unfair and deceptive under Section 5 if, among other things, the sender, “in bad faith,” misrepresents that

  • it has the right to enforce the patent (when it does not);
  • a patent infringement action has been filed against the recipient and/or other persons;
  • legal action for infringement will be taken against the recipient; or
  • other persons have purchased a license to the asserted patents.

The bill also prohibits sending a demand letter in bad faith seeking compensation for infringing a patent that has been held, in a final determination, to be invalid or unenforceable due to inequitable conduct.  The FTC and states attorneys general would be granted authority to bring civil actions for penalties and other relief against persons that violate the Act, with the FTC retaining the right to intervene in any civil action brought by a state attorney general.  A previous version of the TROL Act was introduced last year.  After mark up by the House’s Subcommittee on Commerce, Manufacturing and Trade, the bill was forwarded, as amended, to the full Energy and Commerce Committee for consideration, but did not advance further.

STRONG Act.  In May of this year, Senators Coons (D-DE), Durbin (D-IL) and Hirono (D-HI) introduced a proposed bill known as the Support Technology & Research for Our Nation’s Growth Act, or “STRONG Act.”  If enacted into law, this bill would, inter alia:

  • harmonize the claim-construction standard used in post-grant proceedings at the Patent Trial and Appeal Board (PTAB) with the standard used in District Court litigation;
  • clarify that during post-grant proceedings, the patent-holder may propose amended, narrower claims for the patent(s) under consideration;
  • maintain the presumption of validity for patent rights in post-grant proceedings, and clarifies that unpatentability may be proved for existing claims by the “clear and convincing evidence” standard used in District Court litigation;
  • attempt to minimize abuse of post-grant proceedings by ensuring that a petitioner has a business or financial reason to bring a case before the PTAB, to reduce incentives for privateering or extortion of nuisance settlements; and
  • permit evidence in post-grant discovery to determine the petition’s real party in interest.

PATENT Act.  At the end of 2013, Senators Leahy (D-VT) and Lee (R-UT) introduced the Patent Transparency and Improvements Act of 2013 (see our Nov. 19, 2013 post), but the bill was pulled from debate apparently due to lack of bi-partisan support (May 23, 2014 post).  In April of this year, Senator Leahy, along with several other Senators from both sides of the aisle, introduced a separate patent reform bill known as the Protecting American Talent and Entrepreneurship Act, or “PATENT Act.”  Here is an overview of some of that version of the PATENT Act’s provisions.

  • Pleading Requirements for Patent Infringement Complaint.  The PATENT Act would expressly direct the Supreme Court to eliminate Form 18, “Complaint for Patent Infringement,” in the Appendix to the Federal Rules of Civil Procedure (as we previously reported, the Judicial Conference has already recommended the elimination of Form 18, and this rule change is expected to take effect later this year).  Similar to the re-introduced Innovation Act by the House, the PATENT Act contains provisions that would increase the specificity and information required to plead patent infringement, requiring a patentee to identify 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.  District courts would be directed to dismiss any complaint that does not include such factual information unless the plaintiff alleges that such information is inaccessible, the reason(s) why the information is inaccessible, and also generally pleads the factual information that is available.
  • Patent Ownership and Financial Interest.  The PATENT Act 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 Patent Office, including the identity of 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.
  • Other Complaints Involving the Asserted Patents.  The PATENT Act would also require a patent plaintiff to disclose at the outset of an infringement case all other complaints involving the asserted patents filed by the patentee or any of its affiliates within the preceding three (3) years.
  • Standard Setting Obligations.  The proposed PATENT Act would also require a patent plaintiff to disclose at the outset of an infringement case whether any of the asserted patents are subject to an assurance made “to a standards development organization to license others under such patent” if “the assurance specifically identifies such patent[s] or claims therein” and “the allegation of infringement relates to such standard.”
  • Customer Stay.  The PATENT Act also includes a customer stay provision, under which a District Court would be obligated to stay an infringement action against a “covered customer” (defined as a retailer or end user accused of infringement as a result of the sale, offer for sale or use of a patented product or process) where the manufacturer of the accused product or process is also a party to the action against the customer or a separate infringement action involving the same patent or patents, the covered customer agrees to be bound by the patent determinations that are made in the case against the manufacturer, and the motion to stay is filed no later than 120 days after service of the first pleading against the covered customer or the date on which the first scheduling order is entered.  If the covered customer impleads the manufacturer of the accused product or process into the case, then a stay may only be granted if the covered customer and manufacturer agree in writing to a stay.  If the manufacturer obtains or consents to entry of a consent judgment or fails to prosecute the patent issues to a final decision, the District Court may, upon motion, determine that the consent judgment or unappealed final decision is not binding on the customer if the customer shows that “such an outcome would unreasonably prejudice or be manifestly unjust to the covered customer in light of the circumstances of the case.”
  • Stay of Discovery Pending Decision on Certain Initial Motions.  The proposed PATENT Act would stay discovery in patent infringement actions during the pendency of a motion to dismiss, a motion to transfer venue and a motion to sever accused infringers if the motion or motions were filed prior to the first responsive pleading.  The District Court would retain discretion to allow limited discovery that is “necessary to resolve” such motions.
  • Discovery limitations.  The Act would also require the Judicial Conference to develop rules that address the extent to which each party in an infringement action is “entitled to receive core documentary evidence and should be responsible for the costs of producing core documentary evidence within the possession or control of each such party, and to what extent each party to the action may seek noncore documentary evidence.”
  • Fee Shifting.  Under the proposed PATENT Act, a District Court would be required to award reasonable attorney fees to a prevailing party if the court determines 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” unless “special circumstances would make an award unjust.”
  • Pre-suit written notice.  In an action alleging infringement “in which the plaintiff has provided written notice of the accusation of infringement to the party accused of infringement prior to filing the action,” the PATENT Act would require the “initial written notice” to: (1) identify each patent believed to be infringed and at least one claim of each patent that is believed to be infringed, (2) contain a “clear and detailed description of the reasons why the plaintiff believes each patent identified . . . is infringed,” (3) notify the recipient that they may have the right to a customer-suit stay, (4) identify any person that has the right to enforce the patent, and (5) if compensation is proposed, “a short and plain statement as to how the proposed compensation was determined.”  If the initial written notice does not contain such information, the defendant’s time to respond to a complaint alleging patent infringement is extended by thirty (30) days.  Additionally, a patent plaintiff seeking to establish willful infringement may not rely on evidence of pre-suit notification unless the notification includes such information.
  • Regulation of “Abusive” Demand Letters.  Similar to the proposed TROL Act, the PATENT Act would render the “widespread” sending of unfair and deceptive demand letters a violation of Section 5 of the FTC Act and expressly grant the FTC the authority to bring enforcement actions against alleged violators.  A demand letter would be deemed to be unlawful if, among other things:
    • it falsely represents that administrative or judicial relief has been sought against the recipient or others or threatens litigation if compensation is not paid, the infringement issue is not otherwise resolved, or the communication is not responded to and there is a pattern of false statements regarding administrative or judicial relief against the recipients or others having been made without litigation or other relief then having been pursued;
    • the assertions contained in the communications lack a reasonable basis in fact or law (e.g., the sender does not have the right to enforce the patent, the sender seeks compensation for acts occurring after the patent has expired, the patent has been finally held to be invalid or unenforceable); or
    • the content of the written communication is likely to materially mislead a reasonable recipient because the content fails to include facts reasonably necessary to inform the recipient (1) of the identity of the person asserting a right to license the patent to, or enforce the patent against, the intended recipient or any affiliated person, (2) of the patent allegedly infringed by the recipient, and (3) if infringement or the need to pay compensation for a license is alleged, of an identification of at least one product, service, or other activity of the recipient that is alleged to infringe the identified patent or patents and, unless the information is not readily accessible, an explanation of the basis for such allegation.

On Tuesday, the co-sponsors released the Committee Manager’s proposed amendments to the PATENT Act.  Among other things, the amendments would add language that changes the procedures for inter partes review (IPR) and post grant review (PGR) at the Patent Office.  Specifically, the amendments would:

  • require IPR and PGR proceedings to apply the same claim construction standard used in District Court and consider District Court claim constructions;
  • estop parties from eschewing in later court or Patent Office proceedings arguments made on claim construction to the Patent Office;
  • presume that patents are valid in IPR and PGR proceedings, though retaining the current preponderance of the evidence burden to invalidate a patent in such proceedings;
  • clarify that the Patent Office Director has discretion not to institute an IPR or PGR if doing so would not serve the interests of justice considering factors such as whether the same prior art or arguments were decided in a prior proceeding or the patent is the subject of a current Patent Office proceeding;
  • allow patent owners to submit evidence in response to a petition to institute an IPR or PGR, and permit petitioners to file a reply to respond to new issues;
  • direct the Patent Office to modify the IPR and PGR process so that institution and merits decisions are not made by the same panels;
  • direct the Patent Office to hold a rulemaking on instituting a Fed. R. Civ. P. 11-type obligation in IPR and PGR proceedings;
  • require PTAB decisions to be publicly available and searchable on the web; and
  • remove the ability to join additional claims to a timely-filed IPR after the time for filing has elapsed, except for claims that are newly-served against the petitioner in an amended complaint (which get 1 year from amendment).

The Judiciary Committee is scheduled to mark-up the PATENT Act today.

“Limitations”, “elements” and bears, oh my!

Posted in Legislation

Patent claims have “limitations.”  Accused infringing products have “elements.”  A patent owner may argue that patent claim “limitations” read onto “elements” of an accused infringing product.  The Federal Circuit, sitting en banc, resolved this divisive issue fifteen years ago: “It is preferable to use the term ‘limitation’ when referring to claim language and the term ‘element’ when referring to the accused device.” Festo v. Shoketsu, 234 F.3d 558, 563 n.1 (Fed. Cir. 2000) (en banc).  Unfortunately, in the same breath in which the Federal Circuit gaveth clarity, it also tooketh it a way, the complete Festo statement being as follows:

In our prior cases, we have used both the term “element” and the term “limitation” to refer to words in a claim.  It is preferable to use the term “limitation” when referring to claim language and the term “element” when referring to the accused device.  However, because the en banc questions use the term “element,” we use that term in this opinion. [emphasis added; internal citations omitted]

So when attorneys and courts quote other language from this Festo decision — one of the most quoted decisions in patent law — that language improperly uses the term “element” to refer to patent claim language, rather than “limitation”, thus perpetuating the very confusion that the Festo footnote sought to clarify.  Darn … missed it by that much.

It is understandable, then, that language in the newly proposed Manager’s amendment to the Senate’s PATENT Act bill may misuse the term “element”, stating the following in a portion of the bill on what information must be provided in pleading patent infringement:

(5) For each claim identified under paragraph (2), a description of the elements thereof that are alleged to be infringed by the accused instrumentality and how the accused instrumentality is alleged to infringe those elements. [emphasis added]

Perhaps this language is intended to seek a description of how claim limitations read onto elements of an accused instrumentality?

This is part of a contested provision in the bill regarding how much information must be provided in a complaint in order to initiate a district court litigation on patent infringement.  The various interested parties, Senators and their staff may be more focused at the moment on the big picture of whether and to what extent there should even be such a provision at all.  Addressing this technical problem may not be high on the priority list.  Those who oppose this provision altogether may focus more on striking the entire provision than correcting this.  Those who want this provision may be wary about proposing any change lest the house of cards fall altogether.

Patent purists would want to see the words “limitations” and “elements” used correctly.  The Federal Circuit’s well-intended attempt in Festo to teach us how to use the terms “limitations” and “elements” was less than perfect in its execution.  The current bill misses the mark.  We take no position here whether any of the bill’s provision itself or anything like it should be enacted.  But if — for good or for bad — something is enacted, may “limitations” be limitations, “elements” be elements, and “bears” be bears (okay …  bears have nothing to do with this, but it made for a more interesting title to this post).

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