Today, the U.S. Supreme Court decided to review the Federal Circuit’s ruling of infringement under 35 U.S § 271(f)(1) based on supplying from the United States a component of a patented invention. This case may provide the Supreme Court’s view of whether and to what extent a single component may be “a substantial portion of the components of a patented invention” under § 271(f)(1). Continue Reading Supreme Court to review § 271(f)(1) liability for exporting a component of a patented invention (Life Tech v. Promega)
Today the Supreme Court issued its awaited Cuozzo decision and gave strong deference to the U.S. Patent & Trademark Office (“Patent Office”) power (1) to make an unappealable determination to institute inter partes review (IPR) of an issued patent and (2) to make both procedural and substantive rules governing the IPR process, including what standard the Patent Office wants to use when construing patent claims in an IPR proceeding. The Court’s ruling on the specific Patent Office IPR regulations at issue here was generally expected. The broader impact of the decision may be the Court’s indication of how much power Congress gave the Patent Office to regulate IPRs. Continue Reading Supreme Court confirms Patent Office’s power to regulate inter partes reviews (Cuozzo v. Lee)
Today, the Supreme Court issued an opinion that replaces the Federal Circuit’s strict Seagate test for enhanced patent damages with a test that is easier for patent owners to meet. Relying extensively on the Court’s recent Octane and Highmark decisions that created an easier standard to receive attorney fees in exceptional patent cases, the Supreme Court ruled as follows:
- Eliminated Seagate’s objective recklessness prong (that avoided an accused infringer’s subjective belief) and focused on a subjective basis for enhancing damages given an infringer’s egregious conduct in the particular circumstances of the case, which behavior goes beyond what is found in a typical patent case.
- Lowered the patent owner’s burden of proof from the “clear and convincing evidence” standard to the lower “preponderance of the evidence” standard generally applied to infringement.
- Adopted a simple “abuse of discretion” standard of review that requires the Federal Circuit to defer more to the district court’s decision whether to enhance damages.
Judge Breyer’s concurring opinion explains his understanding of today’s decision and the limits on enhancing damages. He sought to avoid the perception that the decision reverts back to pre-Seagate law where costly opinions of counsel were sought upon simply receiving notice of a patent and much litigation centered around such opinions and waiving privilege by relying on them. Continue Reading Supreme Court ruling increases patent owners’ ability to get enhanced damages (Halo v. Pulse)
Last week, the Federal Circuit en banc ruled that the sale of a product abroad by a U.S. patent holder (or others) does not exhaust the patent owner’s U.S. patent rights, such as the right to exclude sale or importation of that product within the United States. Further, the Federal Circuit ruled that, when a U.S. patent holder sells a product with expressed restrictions on resale or reuse of that product, the patent exhaustion doctrine does not preclude the patent owner from exercising its right to exclude resale or reuse of that product. The Federal Circuit summarized its ruling as follows:
We hold that, when a patentee sells a patented article under otherwise-proper restrictions on resale and reuse communicated to the buyer at the time of the sale, the patentee does not confer authority on the buyer to engage in the prohibited resale or reuse. The patentee does not exhaust its § 271 rights to charge the buyer who engages in those acts–or downstream buyers having knowledge of the restrictions–with infringement. We also hold that a foreign sale of a U.S.-patented article, when made by or with the approval of the U.S. patentee, does not exhaust the patentee’s U.S. patent rights in the article sold, even when no reservation of rights accompanies the sale. Loss of U.S. patent rights based on a foreign sale remains a matter of express or implied license.
This is a lengthy decision that provides insight into the Federal Circuit’s view of not only the patent exhaustion doctrine, but the fundamental patent right to exclude and extraterritorial limits that preclude U.S. law from reaching into other countries and, importantly, that precludes laws of other country’s from limiting U.S. patent rights. Continue Reading Federal Circuit rules sale abroad does not exhaust U.S. patent rights (Lexmark v. Impression)
Last week, the Federal Circuit denied en banc review by the entire court of the three-judge panel decision in the Apple v. Samsung case that had revived the ability to obtain injunctive relief against multiple component products, such as smartphones (see our Sep. 17, 2015 post). In doing so, the original three-judge panel (Prost, Moore and Reyna) issued an Order that withdrew their original opinion and issued a revised opinion that focuses on the patented feature being “one of several [features] that cause consumers to make their purchasing decision,” rather than the patented feature having to be “the exclusive or significant driver of customer demand” as prior decisions had intimated.
Today, a three-judge Federal Circuit panel (Prost (author), Dyk and Hughes) issued its awaited decision in CSIRO v. Cisco that agreed-in-part and disagreed-in-part with Judge Davis’ damages award based on patents alleged to be essential to the IEEE 802.11 WiFi standard, but which patents did not have any FRAND or other standard-setting obligation (see our July 28, 2014 post on Judge Davis’ decision). This is an important decision that provides incremental insight into proving and determining a reasonable royalty for a standard essential patent, which includes further insight into the Federal Circuit’s first decision on this issue a year ago in Ericsson v. D-Link that involved a standard essential patent that did have a FRAND obligation under the IEEE 802.11 WiFi standard (see our Dec. 5, 2014 post on the Ericsson v. D-Link decision).
This is an important decision to read directly to catch all the nuances and import of the decision, and the incremental guidance it provides in determining a royalty rate as a matter of patent damages law for past infringement of a patent that is essential to a standard. A few particularly important points come from the decision.
First, the Federal Circuit soundly rejected as “untenable” the accused infringer’s argument that there is a “rule” that all patent damages methodologies always must start out using the smallest salable patent-practicing unit. The smallest salable patent practicing unit is a principle that can aid courts to determine if a damages expert’s methodology reliably apportions to the patent only the value that the patented technology provides to the infringing product and not other unpatented features. But it is not the only approach that may be considered, and different cases present different factual circumstances that could lend themselves to different reliable methodologies. For example, damages methodologies properly may rely on real-world comparable licenses to reliably apportion value to the patented technology, whether the royalties are based on end products or components thereof. This decision may very well put to rest arguments that there is some “rule” requiring use of the smallest salable patent-practicing unit or that there is any problem per se in royalties being based on the end product rather than its components.
Second, the Federal Circuit clarified that the need to apportion the value of the patented technology from the value of standardization applies whether or not a standard essential patent is subject to a FRAND or other standard setting obligation. This is based on the long-standing, fundamental principal that statutory damages for infringement under 35 U.S.C. § 284 must be based on the value of the patented invention and not other unpatented features, whether that’s other unpatented technology in an infringing product or the value of the patent being essential to a standard. Continue Reading Federal Circuit provides guidance on royalty determination for standard essential patents (CSIRO v. Cisco)
Today, a divided three-judge panel of the Federal Circuit (Prost, O’Malley concurring and Newman dissenting) ruled that the U.S. International Trade Commission’s (ITC) authority to provide remedies for unfair acts involving importation of “articles” does not extend to electronic transmission of digital data into the United States. In addition to its impact on the ITC’s jurisdiction over certain patent infringement matters, this case provides insight into administrative law that may be worth reading for those interested in that issue. We will not go into that lengthy analysis here, but do provide below a summary of the infringement at issue. Given the division among the three-judge panel and impact of this decision on the scope of the ITC’s jurisdiction and emerging technologies (e.g., transmission of digital files used to print 3D models), this decision may be subject to requests for en banc review by the entire Federal Circuit or Supreme Court review.
The patents and infringement at issue concern using different stages of teeth aligners that are progressively swapped out over time to slowly transition a patient’s teeth from an initial (e.g., crooked) position into a final (e.g., straightened) position. ClearCorrect US (located in the U.S.) would take measurements of the patient’s initial teeth positions and transmit that data to ClearCorrect Pakistan (located in Pakistan). That Pakistani entity would generate digital models of intermediate positions of the teeth, each intermediate position corresponding to an aligner to be made in the progressive process of moving the teeth from an initial position to a final position. The Pakistani entity electronically transmits those digital models back to the U.S. entity, which uses those digital models to 3D print each of the physical aligners to be used by the patient.
The patent owner argued that the Pakistani entity contributed to infringement of the patents by electronically transmitting the digital models of the different teeth aligners into the U.S.:
Here, the accused “articles” are the transmission of the “digital models, digital data and treatment plans, expressed as digital data sets, which are virtual three-dimensional models of the desired positions of the patients’ teeth at various stages of orthodontic treatment” (“digital models”) from Pakistan to the United States.
The full Commission reviewed the ALJ’s decision and held that (1) the U.S. entity’s direct infringement was solely in the United States and, thus, was not a 337 importation violation within the ITC’s jurisdiction, but (2) the Pakistani entity contributorily infringed the patents by transmitting the digital models into the United States and such infringement was a 337 violation within the ITC’s jurisdiction to grant exclsionary relief.
As discussed, on appeal, the panel majority held that the electronic transmission of digital data into the United States is not an “article” of importation into the United States within the remedial authority of the ITC. The panel majority stated that Congress is in the best position to determine whether the term “article” should be extended to cover these circumstances.
Today, the Supreme Court granted certiorari in two patent cases to review the standard for willful infringement. The two cases, consolidated for review, are Halo Electronics, Inc. v. Pulse Electronics, Inc., et al., No. 14-1513, and Stryker Corp. et al. v. Zimmer, Inc., et al., No. 14-1520.
The grant states that it will address Question 1 presented in the Halo case, which states:
1. Whether the Federal Circuit erred by applying a rigid, two-part test for enhancing patent infringement damages under 35 U.S.C. § 284, that is the same as the rigid, two-part test this Court rejected last term in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014) for imposing attorney fees under the similarly-worded 35 U.S.C. § 285.
The Stryker case had two questions presented, which were as follows:
1. Has the Federal Circuit improperly abrogated the plain meaning of 35 U.S.C. § 284 by forbidding any award of enhanced damages unless there is a finding of willfulness under a rigid, two-part test, when this Court recently rejected an analogous framework imposed on 35 U.S.C. § 285, the statute providing for attorneys’ fee awards in exceptional cases?
2. Does a district court have discretion under 35 U.S.C. § 284 to award enhanced damages where an infringer intentionally copied a direct competitor’s patented invention, knew the invention was covered by multiple patents, and made no attempt to avoid infringing the patents on that invention?
The Federal Circuit’s opinions subject to review are Halo Electronics, Inc. v. Pulse Electronics, Inc., 769 F.3d 1371 (Fed. Cir. 2014), in which a divided court denied en banc review., and Stryker Corp. v. Zimmer, Inc., et al., 782 F.3d 649 (Fed. Cir. 2015), in which the original Federal Circuit three-judge panel granted limited panel rehearing that issued a revised opinion on the objective recklessness prong of willful infringement.
Today, in SCA v. First Quality, the Federal Circuit sitting en banc ruled that the equitable doctrine of laches remains a valid defense in patent infringement actions notwithstanding the Supreme Court’s recent decision in Petrella v. MGM, 134 S. Ct. 1962 (2014), that precludes laches as a defense for copyrights. This decision was not too surprising given the wording and history of the patent statute and laches defense as compared to copyright law. But the Federal Circuit did make some changes as to the applicability of laches for on-going infringement after the patent suit is filed:
Specifically, as to injunctions, considerations of laches fit naturally within the eBay framework. In contrast, Menendez v. Holt, 128 U.S. 514 (1888), and Petrella counsel that laches will only foreclose an ongoing royalty in extraordinary circumstances.
That is the key take-away from this decision. You may find it to be a lengthy, but interesting, read on the history of the laches defense in patent cases. We will see how the twist on applying laches post-suit for on-going infringement will develop.
With respect to an on-going royalty post-suit in the absence of an injunction, the Federal Circuit’s decision was premised on maintaining the distinction between laches, which focuses on the patent owner’s delay in filing suit, and equitable estoppel, which focuses on misleading acts by the patent owner that led the accused infringer to believe it could proceed with what later is alleged to infringe:
With respect to ongoing royalties, while the principles of equity apply, equity normally dictates that courts award ongoing royalties, despite laches. Menendez, an influential case contrasting laches and equitable estoppel in the trademark context, guides us here. According to Menendez, delay in exercising a patent right, without more, does not mean that the patentee has abandoned its right to its invention. Rather, the patentee has abandoned its right to collect damages during the delay. Equitable estoppel, on the other hand, is different–the patentee has granted a license to use the invention that extends throughout the life of the patent …
… Menendez and Petrella caution against erasing the distinction between laches and estoppel. As Petrella stated, “the doctrine of estoppel may bar the copyright owner’s claims completely, eliminating all potential remedies. The test for estoppel is more exacting than the test for laches, and the two defenses are differently oriented. The gravamen of estoppel … is misleading and consequent loss. Delay may be involved, but is not an element of the defense. For laches, timeliness is the essential element. For that reason, absent egregious circumstances, when injunctive relief is inappropriate, the patentee remains entitled to an ongoing royalty. [internal citations omitted]
Today, a divided Federal Circuit panel issued a decision that vacates district court’s decision not to permanently enjoin Samsung from selling mobile devices having features found to infringe Apple’s patents. The majority decision breaths life back into injunctive relief against multi-component/multi-featured devices (like mobile phones) by not requiring the patent owner to show that its patented feature “drive[s] customer demand” for the infringing product in order to show a nexus between the infringement and alleged irreparable harm required for injunctive relief. Rather, the patent owner need show “some connection” between the patented feature and consumer demand for the infringing product, which can be shown in “a variety of ways.” For example, evidence that the patented features “is one of several features that cause consumers to make their purchasing decisions” or “makes a product significantly more desirable.”
This case involves three Apple patents directed to features in touchscreen mobile devices:
- Slide-to-unlock image on touchscreen to unlock mobile device (the ‘721 Patent)
- Generating links within text upon detecting data structures, such as detecting a phone number in a text message and creating a link to dial that number (the ‘647 Patent)
- Automatic spell check and correction on touchscreen (the ‘172 Patent)
In 2012, Apple sued Samsung for infringing those patents (as well as others). Samsung was found to infringe the three patents and a jury awarded Apple over $119 million in damages. Apple then sought to enjoin Samsung from selling mobile phones or tablets with those infringing features — i.e., did not seek to enjoin sales of the mobile phone or tablets per se, just use of the infringing features in those devices. Further, Apple proposed a 30 day “sunset period” before products would be enjoined, which time period coincided with Samsung’s representations at trial that it could quickly and easily remove the infringing features from the accused infringing Samsung devices.
But Judge Koh denied Apple’s request for a permanent injunction, finding that Apple failed to show it would suffer irreparable harm without an injunction. Among other things, Apple had not shown that it lost sales to Samsung infringing devices, because Apple had not shown that the patented features drove customer demand for those products.
Judge Moore wrote the majority decision, which was joined by Judge Reyna, who also wrote a concurring opinion. Judge Prost dissented.
The Federal Circuit’s standard of review here is whether the district court abused its discretion in deciding whether to grant injunctive relief based on the four eBay factors, which are whether the party seeking a permanent injunction has shown:
(1) that it has suffered an irreparable injury;
(2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury;
(3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and
(4) that the public interest would not be disserved by a permanent injunction.
The majority then walked through each of the four factors, the most decisive one in this instance being whether Apple had shown irreparable harm through a “causual nexus relat[ing] the alleged harm to the alleged infringement.”
Irreparable Harm. The patent owner satisfies this first factor by showing it has been “irreparably harmed by the infringement” based on “proof that a ‘causal nexus relates the alleged harm to the alleged infringement.'” The majority rejected Apple’s argument that there is no causal nexus requirement when the patent owner seeks only to enjoin infringing features, rather than an entire product. The majority explained that “[t]he causal nexus requirement ensures that an injunction is only entered … on account of a harm resulting from the defendant’s wrongful conduct, not some other reason.” This is “entirely independent of the scope of the proposed injunction.”
But the majority found that the district court erred by requiring Apple to show that the infringing features “drive consumer demand for Samsung’s infringing products” in order to establish irreparable harm based on a causal nexus between the infringement and Apple’s lost sales. While making such a showing would establish the causal nexus, it is not required and may be “nearly impossible from an evidentiary standpoint [to show] when the accused devices have thousands of features, and thus thousands of other potential causes that must be ruled out.” Rather, the patent owner need only “show ‘some connection’ between the patented features and the demand for the infringing products”:
Thus, in a case involving phones with hundreds of thousands of available features, it was legal error for the district court to effectively require Apple to prove that the infringement was the sole cause of the lost downstream sales. The district court should have determined whether the record established that a smartphone feature impacts customers’ purchasing decisions. Though the fact that the infringing features are not the only cause of the last sales may well lessen the weight of any alleged irreparable harm, it does not eliminate it entirely.
In a footnote, the majority provide more insight into the range of ways that “some connection” between the patented feature and customer demand may be shown, which provides further insight into this issue:
As we explained in Apple III [735 F.3d 1352 (Fed. Cir. 2013)], “some connection” between the patented feature and consumer demand for the products may be shown in “a variety of ways,” including, for example, “evidence that a patented feature is one of several features that cause consumers to make their purchasing decisions,” “evidence that the inclusion of a patented feature makes a product significantly more desirable,” and “evidence that the absence of a patented feature would make a product significantly less desirable.” These examples do not delineate or set a floor on the strength of the connection that must be shown to establish a causal nexus. Apple III included a fourth example to demonstrate a connection that does not establish a casual nexus–where consumers are only willing “to pay a nominal amount for an infringing feaure.” (using example of $10 cup holder in $2000 car). There is a lot of ground between the examples that satisfy the causal nexus requirement and the example that does not satisfy this requirement. The required minimum showing lies somewhere in the middle, as reflected by the “some connection” language.
Thus the district court erred in requiring Apple to show that “the infringing features were the exclusive or predominant reason why consumers bought Samsung’s [infringing] products.” Rather, the court should have required Apple to show that “the patented features impact consumers’ decisions to purchase the accused devices.”
The majority then went through the record in the case and concluded that Apple had made the requisite showing here:
In short, the record establishes that the [patented] features … were important to product sales and that customers sought these features in the phones they purchased. While this evidence of irreparable harm is not as strong as proof that customers buy the infringing products only because of these particular features, it is still evidence of causal nexus for lost sales and thus irreparable harm. … Apple does not need to establish that these features are the reason customers bought Samsung phones instead of Apple phones–it is enough that Apple has shown that these features were related to infringement and were important to customers when they were examining their phone choices. [emphasis in original]
The majority thus concluded that this irreparable harm factor weighs in favor of granting Apple’s requested injunction.
Inadequate Remedy at Law. This second factor considers whether “remedies available at law, such as monetary damages, are inadequate to compensate” for the irreparable harm caused by continued infringement. The district court had found that Apple’s lost sales “were difficult to quantify,” but still concluded that this factor weighed against an injunction because Apple had failed to establish irreparable harm. The majority found this was error given its ruling on irreparable harm, finding that this factor “strongly weighs” in favor of an injunction given “the extent of Apple’s downstream and network effect losses are very difficult to quantify.”
Balance of Hardships. This third factor concerns “assess[ing] the relative effect of granting or denying an injunction on both parties.” The district court found that this factor favored injunctive relief based on (1) the proposed injunction targeting specific features, not entire products; (2) the proposed 30-day sunset provision and (3) Samsung’s repeated argument to the jury that “designing around the asserted claims … would be easy and fast.” The latter point raises the typical Catch-22 accused infringers encounter when arguing that a patented feature has little value in order to avoid a large damages award, and then that argument being used against them when trying to avoid injunctive relief. The majority held that this factor strongly weighed in favor of injunctive relief:
On this record, it is clear–Samsung will suffer relatively little harm from Apple’s injunction, while Apple is deprived of its exclusivity and forced to compete against its own innovation usurped by its largest and fiercest competitor. Given the narrow feature-based nature of the injunction, this factor strongly weighs in favor of granting Apple this injunction.
Public Interest. This fourth and final factor requires the patent owner to show that “the public interest would not be disserved by a permanent injunction.” The district court found this factor favors injunctive relief, because (1) “enforc[ing] patent rights … promote[s] the encouragement of investment-based risk” and (2) “an injunction may prompt introduction of new alternatives to the patented features.” The majority agreed, and then some, stating that “the public interest strongly favors an injunction” here [emphasis in original]:
Samsung is correct–the public often benefits from healthy competition. However, the public generally does not benefit when that competition comes at the expense of a patentee’s investment-backed property right. To conclude otherwise would suggest that this factor weighs against an injunction in every case, when the opposite is generally true. We based this conclusion not only on the Patent Act’s statutory right to exclude, which derives from the Constitution, but also on the importance of the patent system in encouraging innovation. Injunctions are vital to this system. As a result, the public interest nearly always weighs in favor of protecting property rights in the absence of countervailing factors, especially when the patentee practices his inventions. The encouragement of investment-based risk is the fundamental purpose of the patent grant, and is based directly on the right to exclude.
The majority thus vacated the district court’s denial of an injunction and remanded the case back to the district court for further proceedings consistent with this opinion. The majority concluded that, “[i]f an injunction were not to issue in this case, such a decision would virtually foreclose the possibility of injunctive relief in any multifaceted, multifunction technology.”
Judge Reyna Concurrence. Judge Reyna issued a concurring opinion, noting that the decision “leaves open the door for obtaining an injunction in a case involving infringement of a multi-patented device, a door that appears near shut under current law.” He also would have ruled that irreparable harm would arise based on “injury that the infringement causes Apple’s reputation as an innovator.” This type of harm, when it occurs, is irreparable. The majority decision written by Judge Moore, which Judge Reyna joined, stated that it need not reach that issue given the finding of irreparable harm based on lost sales.
Judge Prost Dissent. Judge Prost dissented, finding that “[t]his is not a close case.” Among other things, Apple did not use the patented spell correction feature and the other two patented features were “minor features (two out of many thousands) in Apple’s iPhone.” The record does not show “clear error” in the district court’s factual findings underlying its decision to deny injunctive relief.