Hopefully the current patent reform effort to address perceived patent litigation abuse problems will result in carefully targeted tweaks to–without harming–our otherwise thriving U.S. patent system, the greatest system for innovation that the world has ever known (see our Patent Forest post).  The Senate is currently considering this balance.  The Senate Judiciary Committee was scheduled to mark-up and vote on a proposed bill designed to curb perceived litigation abuses by non-practicing entities (what some refer to as patent “trolls”) last Thursday but the vote was postponed to give Committee members and their staff time to continue working on language that strikes a balance between protecting the rights of patent holders to pursue good faith claims of infringement and reducing the alleged bad faith tactics of non-practicing entities.  According to Senator Leahy (D-Vt.), the bill’s sponsor, a proposed provision aimed at reducing the ability of non-practicing entities to hide behind shell corporations in order to be judgment proof had proven to be “complicated.”  However, the Senator noted that the bill had bipartisan support.

The Committee pushed the vote to Tuesday, April 8, however it was again postponed.  According to published reports, Democrats circulated revisions of the bill to the Committee but have yet to receive feedback from Republican members.  The Committee will attempt to mark-up the bill on April 10.

As we discussed in a prior post, the proposed bill would require patent-plaintiffs to disclose ownership information for asserted patents at the outset of infringement litigation.  The bill would also require courts to stay infringement suits against customers of infringing products or processes if the manufacturer and customer consent, the manufacturer is a party to an action involving the same patents or product(s), the customer agrees to be bound by the result of the manufacturer’s litigation, and the motion for stay is filed within a specified time early in the case.

The bill would also expressly grant the Federal Trade Commission authority to investigate and bring enforcement actions against patent holders that engage in unfair and deceptive acts and practices in connection with demand letters to accused infringers.

Late last year, the House of Representatives passed a competing bill that would impose heightened pleading standards for patent infringement complaints and also require a patent-plaintiff to plead       “[w]hether a standard-setting body has specifically declared such patent to be essential, potentially essential, or having potential to become essential to that standard-setting body.”  As we have discussed before, SSOs generally do not declare patents essential or potentially essential to their standards.  Rather, declarations of essentiality are usually made by the patent owners themselves in letters of assurances or similar disclosures. However, these disclosures frequently do not declare whether the patent covers the standard, but assert that it might cover the standard and set forth the obligations the patent owner agrees to if the patent actually is essential to the standard.

Yesterday, a Florida jury returned a verdict that BlackBerry did not infringe NXP’s patents alleged to be essential to the IEEE 802.11 WiFi and JEDEC eMMC standards and that the asserted patent claims were invalid.  The role of BlackBerry’s standard essential patent defenses is not clear from the record, though it appears to have been limited to arguments that any damages must be consistent with reasonable and non-discriminatory (RAND) licensing terms (e.g., no apparent allegation or remedy sought for NXP breaching a RAND obligation).

Specifically, a few weeks ago Judge Kane denied NXP’s motion in limine to preclude BlackBerry from offering any affirmative defense based on RAND or FRAND licensing obligations because BlackBerry allegedly did not plead or disclose any such defenses.  Judge Kane held that the RAND defense may be based on pleadings of implied license, patent misuse, or equitable estoppel even though the “better practice is to assert the RAND obligation in conjunction with pleading license, exhaustion, or implied license.”

In its opposition to NXP’s motion in limine and in its trial brief, BlackBerry did not focus on any RAND-based defenses other than arguing that, if NXP’s patents covered the standards (which BlackBerry disputed), then any damages must be based on a RAND royalty rate (though not clear how that was alleged to be different from a reasonable royalty rate).  The jury instructions did not have any RAND-specific instructions or defenses.  The RAND-obligation issue, therefore, appears to have been subsumed in the reasonable royalty damages argument (based on the typical Georgia-Pacific reasonable royalty analysis per Jury Instruction Nos 23-25), which damages issue the jury did not reach because they found that the patent claims were not infringed and were invalid.

Today, in Teva Pharmaceuticals v. Sandoz, Inc., the U.S. Supreme Court granted the petition seeking review of the Federal Circuit’s de novo standard of review of a district court’s claim construction ruling.  Teva phrased the question presented as follows:

QUESTION PRESENTED
Rule 52(a) of the Federal Rules of Civil Procedure provides that in matters tried to a district court, the court’s “[f]indings of fact … must not be set aside unless clearly erroneous.”
The question presented is as  follows:
Whether a district court’s factual finding in support of its construction of a patent claim term may be reviewed de novo, as the Federal Circuit requires (and as the panel explicitly did in this case), or only for clear error, as Rule 52(a) requires.

The question presented mirrors Judge O’Malley’s dissent in the Federal Circuit’s recent divided en banc decision in Lighting Ballast v. Philips Electronics, which upheld the Cybor de novo standard of review of a district court’s claim construction ruling (see our Feb. 21, 2014 post summarizing that decision).

Recall that, in Lighting Ballast, Judge Newman’s majority decision considered three proposed standards of review:

(1) clear error review that defers to the district court’s claim construction ruling,
(2) clearly erroneous review of facts that defers to factual findings underlying the district court’s claim construction ruling, and
(3) Cybor plenary (or de novo) review that does not defer to the district court’s claim construction ruling.

The majority concluded that, under principles of stare decisis, there was insufficient reason to depart from the Cybor standard of review.

Judge Lourie concurred, noting that “whatever rubrice is used to describe the standard” does not matter, because the appellate court will defer to the district court’s claim construction decision as a practical matter in instances where “there are truly factual issues involved in claim construction.”

Judge O’Malley dissented because, among other things, Rule 52(a) requires deference on appeal to the district court’s findings of facts — “findings of fact … must not be set aside unless clearly erroneous.”  Judge O’Malley–a former district court judge–also sought more deference to avoid undermining district court decisions.

The Supreme Court’s decision to review the standard of review of claim construction is not surprising given the en banc split at the Federal Circuit on this issue — the closest patent issues from the single patent appeal court come to a split among regional circuits that typically warrants Supreme Court review.

Some in the patent bar support the current Cybor de novo standard of review because, among other things, it will provide more uniformity in decisions dealing with what typically is the most important ruling in a patent case — what does the patent cover.  Others, however, prefer a more deferential standard so that cases may be resolved sooner in the litigation process, rather than the district court providing an advisory decision as a waypoint to inevitable Federal Circuit review.

Those supporting a more deferential review of the district court’s claim construction ruling may hope that a legal generalist’s view from the Supreme Court may not be inclined to carve-out an exception for patent cases to the general Rule 52(a) standard of review.  Recall that, in Dickinson v. Zurko, the Supreme Court set aside a long-standing Federal Circuit standard of review of Patent Office factual findings because it conflicted with the more deferential standard required under the general Administrative Procedures Act (APA).

You can find filings for this Supreme Court case at SCOTUSblog.

The ITC has now released the public version of its decision to terminate the LSI-Realtek investigation without addressing RAND issues, which we discussed in our March 5, 2014 post.  The public version does not provide any more insight into the decision not to address the standard essential patent RAND issues beyond it being moot given no violation found:

8.  RAND and Equitable Defenses
Because we conclude that there are multiple grounds for determining no violation of section 337 with respect to the ‘958 patent, the Commission does not reach any RAND or equitable defenses associated with the ‘958 patent.  Therefore, the Commission takes no position on the ALJ’s determinations with respect to the respondents’ RAND defenses and equitable defenses. [Op. at 33-34]

So the RAND issues in this investigation are moot unless somehow revived from any appeal to the Federal Circuit. 

Of course, the RAND issues are alive and well in the parallel district court litigation before Judge Whyte where the jury decided a RAND royalty rate and awarded damages for LSI breaching the RAND obligation (see our February 27, 2014  post)  and Judge Whyte will be ruling on Realtek’s motion to permanently enjoin LSI from seeking an exclusion order/injunction on its RAND-encumbered patents (see our March 13, 2014 post and March 21, 2014 post).  The appeal from the district court case, however, may go to the Ninth Circuit, rather than the Federal Circuit, based on this being a contract dispute (not patent infringement suit) and the prior appeal in this case to the Ninth Circuit of Judge Whyte’s preliminary injunction (see our March 21, 2014 post).

In the midst of ongoing congressional efforts at patent litigation reform (see Monday’s post for the most recent developments), U.S. District Court Judge Sue Robinson released a new scheduling order on Monday, directed to better managing the hundreds of patent cases before her in the District of Delaware. Resulting from “the lively and informative discussions” prompted by the District of Delaware’s Patent Study Group, Judge Robinson’s new scheduling order implements several changes to improve efficiency and protect against perceived nuisances, including:

  • Submitting all discovery disputes, overall management of discovery, and motions to dismiss, to amend, and to transfer to a Magistrate Judge;
  • Requiring certain patent disclosures in advance of the initial scheduling conference, including plaintiffs’ identification of the accused products, its damages model, and which patents the accused products are alleged to infringe and defendants’ core technical documents demonstrating how the accused products work;
  • Setting forth at the onset of the case a schedule for claim construction briefing, expert discovery and reports, summary judgment briefing on infringement and invalidity, and trial; and
  • Eliminating motions in limine, instead addressing evidentiary issues at the pretrial conference and during trial.

At least some of these changes should be familiar to those who have litigated in districts with patent-specific scheduling orders, including N.D. Cal., E.D. Tex. and the ITC. Judge Robinson, whose docket currently hosts upwards of 300 patent cases, indicated in a letter to counsel that all non-ANDA patent cases that have had a scheduling order entered in the past six months will presumptively be switching to the new process, while preserving, to the extent possible, any pretrial and trial dates that have already been scheduled. Additional information regarding procedures in Judge Robinson’s court is available on her chambers’ website.

Non-practicing entity US Ethernet Innovation’s (“USEI”) infringement action against Samsung was brought to a close last Friday, with E.D. Tex. Judge Michael H. Schneider granting the parties’ joint motion for dismissal with prejudice. USEI filed this action against Samsung and peripheral printing device manufacturer OKI Data Americas on June 22, 2012, alleging that certain OKI and Samsung printers employing Ethernet technologies infringe four USEI patents.

We previously commented on this case in our February 2013 post, when Magistrate Judge Love issued an order denying co-defendant OKI’s motion to dismiss for failure to state a claim and for improper joinder, holding, inter alia, that standards-compliant system-on-a-chip (SoC) suppliers may be properly joined with their customers under the AIA.  Samsung later moved for Summay Judgment of Invalidity, which was denied in October 2013. OKI then settled with USEI and was dismissed from the case in November 2013.

Last month, Samsung and USEI attended mediation before former Chief Judge David Folsom of the Eastern District of Texas.  The mediation apparently resolved the dispute, because Samsung and USEI jointly moved to dismiss the action and the Court entered final judgment dismissing the case with prejudice on March 21.

As we discussed in a prior post, the U.S. Senate is currently debating a patent reform bill (“the Innovation Act”) passed by the House of Representatives late last year directed to perceived patent litigation abuse by certain patent assertion entities (what some characterize as “patent trolls”).  The Senate is also debating a competing bill (“the Patent Transparency and Improvements Act of 2013”) introduced by Senator Patrick Leahy (D-Vt.), Chairman of the Senate Judiciary Committee.

The bill passed by the House would impose heightened pleading standards for patent infringement complaints, requiring patent-plaintiffs to identify — in their complaint — the patents, the patent claims specifically asserted, the instrumentalities accused of infringement, and an element-by-element description of how each accused instrumentality practices the asserted patent claims.  These standards would, if enacted into law, provide patent-defendants the opportunity to seek early dismissal of complaints that fail to plead the requisite factual information.

The House bill would also require a patent-plaintiff to plead “[w]hether a standard-setting body has specifically declared such patent to be essential, potentially essential, or having potential to become essential to that standard-setting body.”  As we noted previously, SSOs generally do not declare patents essential or potentially essential to their standards.  Instead, declarations of essentiality are usually made by the patent owners themselves in letters of assurances or similar disclosures.  These disclosures frequently do not declare whether the patent covers the standard, but assert that it might cover the standard and set forth the obligations the patent owner agrees to if the patent actually is essential to the standard.

The Senate bill would require patent-plaintiffs to be transparent with ownership information for asserted patents.  Specifically, at the outset of infringement litigaiton, patent-plaintiffs would be required to disclose to the Court and all adverse parties any persons, associations of persons, firms, partnerships, corporations (including parent corporations), or other entities other than the patentee itself known by the patentee to have “a financial interest (of any kind) in the subject matter in controversy or in a party to the proceeding; or (2) any other kind of interest that could be substantially affected by the outcome of the proceeding.”

The Senate bill would also require courts to stay infringement suits against customers of infringing products or processes if:

(1) the manufacturer and the customer consent in writing to the stay;

(2) the manufacturer is a party to the action or a separate action involving the same patent or patents relating to the same covered product or process;

(3) the customer agrees to be bound under the principles of collateral estoppel by any issues finally decided as to the manufacturer that the customer has in common with the manufacturer; and

(4) the motion for stay is filed after the first pleading in the action but not later than the later of—(a) 120 days after service of the first pleading in the action that specifically identifies the product or process as a basis for the alleged infringement of the patent by the customer, and specifically identifies how the product or process is alleged to infringe the patent; or (b) the date on which the first scheduling order in the case is entered.

The Senate bill would also expressly grant the Federal Trade Commission authority to investigate and bring enforcement actions against patent holders that engage in unfair and deceptive acts and practices in connection with demand letters to accused infringers.

Recently, Senator Leahy announced that he would be listing “bipartisan legislation for consideration on” the Senate’s next agenda.  As a result, the bipartisan bill will be discussed during the upcoming Executive Business Meeting of the Senate Judiciary Committee on March 27, 2014.  We will monitor the meeting and provide an update on the status of this legislation.

SanDisk brought suit against Round Rock Research in the District of Delaware last week, alleging that the patent assertion entity’s acquisition and enforcement of standard essential patents previously held by Micron Technology has violated federal and state antitrust laws and breached contractual commitments to license the patents on RAND terms. The action, Sandisk Corporation v. Round Rock Research LLC, Case No. 1:14-cv-00352, comes in the midst of two ongoing patent cases between the companies — one declaratory judgment action filed by SanDisk in the Northern District of California and the other an infringement action filed by Round Rock in Delaware.

SanDisk’s March 20, 2014 complaint alleges that Round Rock Research conspired with flash memory device manufacturer Micron Technology to acquire and subsequently monetize patents that Micron could not enforce itself due to SSO commitments.  Specifically, SanDisk alleges Micron’s participation in the JEDEC Solid State Technology Association obligated Micron to disclose patents that might be relevant to JEDEC’s work, even after the adoption of a given standard and to offer participants licenses on RAND terms.  SanDisk alleges that Micron failed to disclose the patents-at-issue despite their relevance to JEDEC eMMC standards and that Round Rock acquired the patents in attempt to monetize them free of Micron’s SSO obligations:

After acquiring patents from Micron, Round Rock sought from SanDisk supracompetitive, hold-up royalties for patents that Micron had never disclosed to JEDEC and that Round Rock claimed SanDisk infringed by practicing a JEDEC standard (“the eMMC standard”). When SanDisk did not capitulate to its demands, Round Rock sued seeking above-RAND royalties and treble damages based on undisclosed alleged standard-essential patents.

SanDisk further alleges that Round Rock has admitted to targeting SanDisk’s current eMMC-compliant products by acquiring patents it believed covered those devices.

By way of background as set forth in the complaint, Round Rock acquired a group of patents from Micron in 2009. Round Rock later approached SanDisk regarding these patents and made a presentation to SanDisk in October 2011, during which Round Rock claimed to have acquired patents reading on products compliant with JEDEC eMMC standard JESD84-A441.   Round Rock sought “supracompetitive” royalty fees on SanDisk’s embedded flash drive products. SanDisk filed for declaratory judgment that the patents presented by Round Rock were invalid and not infringed by SanDisk. Case No. 3:11-cv-05243 (N.D. Cal.). Round Rock then acquired new patents from Micron in 2012 and filed a separate patent infringement action against SanDisk in Delaware. Case No. 1:12-cv-00569.

Since 2011, Round Rock has filed approximately 20 patent infringement actions against a variety of companies, including Acer, Amazon.com, American Apparel, ASUSTeK, Dell, Dole Foods, Fruit of the Loom, Gap, Hanes, HTC, JC Penny, Lenovo, Macy’s, Oracle, Pepsi, V F, and Wal-Mart, almost all of which were also filed in the District of Delaware.

Last week, the Wisconsin state Assembly voted to approve a bill designed to rein in abusive assertions of patent infringement against companies doing business in Wisconsin and their customers.  The bill was approved by the Wisconsin state Senate earlier this month, and will now be presented to the governor for signature.

As we discusssed in a prior post, Virginia, Oregon and Vermont have passed similar bills, and the Nebraska Attorney General has attempted to enforce that state’s general consumer protection and unfair competition laws against alleged bad faith assertions of patent infringement.

While the Wisconsin legislature was apparently targeting non-practicing entities (what some refer to as “patent trolls”), the text of the bill applies, with limited exceptions, to all individuals or entities who attempt to enforce patents or patent applications against entities doing business in Wisconsin or their customers.  Exempt from the bill’s reach are:

  • Claims of infringement by institutions of higher education (or a technology transfer organization that is owned, controlled or operated by, or associated with, an insitution of higher education);
  • Claims of infringement of a patent on a device or a component of a device that is regulated by the U.S. Food and Drug Administration (FDA) or the U.S.  Department of Agriculture; and
  • Communications attempting to enforce or assert a right arising under certain provisions of federal law, namely 35 U.S.C. § 271(e)(2) (patent infringement by submitting specified types of applications under the Food, Drug, and Cosmetic Act) or 42 U.S.C. § 262 (introduction of specified types of projects without a biological products license).

The bill regulates written communications, called “patent notifications,” by patent holders or licensees that attempt to enforce or assert rights in connection with a patent or pending patent application.  The bill’s provisions are implicated if a patent notification is sent to a “target,” defined as an individual or entity that is domiciled in or does substantial business in Wisconsin or customers of such individuals or entities.

The bill, if enacted into law, would require patent notifications to contain:

1.  The number of each patent or patent application that is the subject of the patent notification;

2.  A physical or electronic copy of each patent or pending patent application;

3.  The name and physical address of the owner of each patent or pending patent application and all other persons having a right to enforce the patent or pending patent application;

4.  An identification of each claim of each patent or pending patent application being asserted as well as the target’s product, service, process, or technology to which that claim relates;

5.  Factual allegations and an analysis setting forth in detail the patent holder’s theory of each claim identified in the notification and how that claim relates to the target’s product, service, process, or technology; and

6.  An identification of each pending or completed court or administrative proceeding, including any proceeding before the U.S. Patent Office, concerning each patent or pending patent application.

If a patent notification lacks of any of this required information, the patent holder has thirty days from the date on which the target notifies the patent holder that the patent notification is incomplete to provide such information to the target.

Patent notifications may not contain false, misleading, or deceptive information.

The Wisconsin attorney general as well as the Department of Agriculture, Trade, and Consumer Protection have the authority to investigate and bring enforcement proceedings against individuals and entities that violate the bill’s provisions.  In such proceedings, the court has the authority to “make any necessary orders to restore any person any pecuniary loss the person has suffered because of the violation.”  The attorney general may also seek a fine of up to $50,000 for each violation.  “Each patent notification is a separate violation.”

The bill also provides a private right of action to a target “or other person aggreived because of a violation” to recover damages, costs of suit, attorneys fees, as well as an award of punitive damages up to $50,000 for each violation “or 3 times the aggregate amount awarded” as actual damages, costs and attorneys fees, “whichever is greater.”  The plaintiff may also seek temporary and permanent injunctive relief against violators.

The approval of the Wisconsin bill confirms the growing trend by state legislatures to take measures aimed at protecting companies doing business within their boundaries from bad faith assertions of patent infringement.  The United States Senate is currently considering similar legislation.

The U.S. Federal Trade Commission (FTC) moved to dismiss patent monetization entity MPHJ’s W.D. Tex. complaint on Monday, alleging that the court lacks jurisdiction over the matter. Back in January 2014, MPHJ filed a complaint against the FTC in W.D. Tex., preemptively seeking to prevent an enforcement action threatened by the FTC. The FTC’s enforcement action was premised on MPHJ’s extensive letter campaign aiming to accumulate license fees on its scanner patents by threatening small end-users with litigation that MPHJ allegedly did not actually intend to pursue. See our January 14, 2014 post for more information on MPHJ’s complaint.

Moving to dismiss the action, the FTC argues that courts lack jurisdiction to enjoin future or pending administrative proceedings, which is precisely what MPHJ’s complaint seeks to accomplish. The FTC further notes that MPHJ’s claims are unripe because they constitute challenges to an enforcement action or administrative proceeding that have not yet been filed or initiated. So far, the FTC has merely begun investigating MPHJ and has invited MPHJ to consent to an order resolving the FTC’s potential claims against it. The FTC argues these activities neither constitute final agency action, implicate an issue that is solely legal in nature, nor impose a hardship on MPHJ that would give a district court jurisdiction over the matter.

To the extent the court is not persuaded by the lack of jurisdiction argument, the FTC argues in the alternative that MPHJ’s complaint should be dismissed under FRCP 12(b)(6). The FTC argues that MPHJ has failed to state a claim upon which the Court may grant MPHJ’s requested relief, noting that MPHJ’s Complaint does not identify statutory authority that the FTC has exceeded, that MPHJ’s First Amendment rights do not protect it from FTC investigation, that MPHJ has not provided ground to establish its attorneys are protected from liability for deception in violation of the FTC Act; and that the complaint fails to allege violation of any constitutional right to counsel.

MPHJ’s activities have been causing quite a stir nationwide. We previously posted about MPHJ receiving attention from the Vermont Attorney General in May 2013, and those of other states based on that letter campaign. In January 2014, we noted Judge Joseph F. Bataillon (D. Neb.) preliminarily enjoined the Nebraska Attorney General (AG) from enforcing a cease and desist order that would prevent or impede the law firm of Farney Daniels from representing patent assertion entity MPHJ to license or litigate MPHJ’s U.S. patents with respect to companies in Nebraska, agreeing to “revisit the preliminary injunction” if the AG’s continued investigation uncovers evidence that “supports a claim of bad faith” in MPHJ’s enforcement activities in Nebraska.

We also note that the Virginia General Assembly joined the state legislatures of Oregon and Vermont by approving legislation designed to protect entities doing business in Virginia from bad faith assertions of patent infringement earlier this month. See our March 10, 2014 post for more information.

UPDATE: The FTC’s motion was denied on March 24, 2014 for failure to comply with the page limits for such motions set forth in the court’s local rules. The next day, the FTC submitted an unopposed motion to file a corrected motion to dismiss after the filing due date, which the court granted, and re-filed its motion to dismiss on March 28, 2014.