We’re going to take a quick time-out from standard-essential patent issues for a minute for a brief post on non-practicing entities.  These NPEs are getting more and more attention from industry, regulators, and Congress, with a multitude of recent legislation (e.g., the SHIELD Act, the Patent Quality Improvement Act and the End Anonymous Patents Act) being introduced to address NPE-related issues.

Today brought the publication of what looks like is the first lawsuit of its kind — a complaint brought by a state attorney general (here, Vermont’s) against a non-practicing entity, alleging that the NPE’s patent assertion activities constitute unfair and deceptive trade practices under Vermont state law. (The suit was actually filed May 8, but it became publicly available today when the defendant was served.)  The complaint was filed against MPHJ Technology Investments LLC, a company that has been characterized by some as the “scanner troll” — because it has sent demand letters to thousands of businesses that use scan-to-email technology.

We’ll let you read the complaint [LINK] and the press release [LINK], and Ars Technica‘s Joe Mullin already has a good article on the suit.  Essentially, though, it looks like the Vermont AG alleges that MPHJ and 40 shell companies violated Vermont Consumer Protection Act by sending demand letters in bad faith to numerous Vermont businesses — and that MPHJ never investigated whether these entities infringed, never actually intended on enforcing its patents, and simply wanted to extract settlements under the mere threat of litigation.  The complaint seeks an injunction against MPHJ, as well as full restitution to the Vermont businesses and civil penalties of up to $10K for each violation.

While state law claims relating to patent infringement assertions are not automatically preempted by federal law, there are inevitably going to be preemption and/or Noerr-Pennington immunity issues that will have to be sorted out here.  The first thing that comes to mind is Innovatio IP Ventures’ successful motion to dismiss unfair competition and RICO claims earlier this year.  The court there noted that under the Federal Circuit case of Globetrotter Software, Inc. v. Elan Computer Grp., Inc., 362 F.3d 1367 (Fed. Cir. 2004), state law claims based on a patent-holder’s assertion of infringement can survive federal preemption only to the extent that those claims are based on a showing of ‘bad faith’ action in asserting infringement — and that in order to have been made in “bad faith,” an assertion must have been both objectively baseless and brought without a subjective expectation of success.  Of course, the complaint appears to imply that MPHJ’s claims objectively and subjectively baseless, so we will have to see how the lawsuit plays out.  It will be interesting, that’s for sure.

Coincidentally (or perhaps not), Vermont is also the state where a state law was recently passed that specifically targets bad-faith NPE patent assertions (a bill that will likely face its own preemption issues).  That bill is expected to be signed into law any day now.

US Supreme CourtBack in September 2012, we posted a Patent Alert on the Federal Circuit’s decision in Medtronic v. Boston Scientific. In that case, the court held that in an action where a licensee in good standing seeks a declaratory judgment of non-infringement (so any counterclaim for infringement would be foreclosed by the existence of the license), the plaintiff licensee bears the burden of persuasion to show non-infringement.  This marked an exception to the general rule that a patent owner bears the burden of showing infringement.  Medtronic subsequently asked the Federal Circuit to rehear the case (both by the panel and en banc), but those requests were denied.  In March, Medtronic filed a petition for a writ of certiorari with the U.S. Supreme Court.

Earlier this week, the Supreme Court granted the writ, agreeing to hear the case.  Essentially, the question presented to the Court is as follows:

[W]hether, in such a declaratory judgment action [alleging non-infringement] brought by a licensee under MedImmune [i.e., where the licensee is in good standing], the licensee has the burden to prove that its products do not infringe the patent, or whether (as is the case in all other patent litigation, including other declaratory judgment actions), the patentee must prove infringement.

Medtronic’s petition points out how the outcome of this case may affect the world of standard-essential patents.  Many standard-setting organizations allow (or even require) patent holders participating in the development of the standard to disclose whether certain of their patents are essential to industry standards.  And it’s not uncommon for patent holders to enter into license agreements where the licensed patents are defined by the standards to which they are essential — e.g., “all patents essential to practice the IEEE 802.11 family of standards.”

Medtronic argues that under the burden allocation scheme in the Federal Circuit’s decision, a licensee that seeks to reduce or eliminate its royalty payments under such a license agreement (e.g., if it believes the licensor has “over-declared” its patents) would improperly bear the burden of proving non-infringement / non-essentiality.

Consider, for example, the situation where a licensor has declared 5 patents as essential to a standard, and its licensee is paying 10 cents per licensed patent in order to practice the standard.  But the licensee now believes 3 of those patents are in fact not essential, and believes it should only owe a royalty of 20 cents per standard-compliant product.  Under the Federal Circuit’s ruling, if the licensee wants to file a declaratory judgment action seeking non-infringement of those 3 patents, unless it first ceases paying royalties on those patents (exposing the licensee to breach of contract and infringement claims), the licensee will bear the burden of showing that the licensor improperly declared those 3 patents as standard-essential.

This case is certainly worth keeping an eye on.  As we’ve noted in other recent posts, the issue of burden-shifting — specifically the issue of whether the patent owner or an accused infringer needs to prove “essentiality” — is coming up more and more in standard-essential patent litigation.  While Medtronic v. Boston Scientific is not a standard-essential patent case, the Supreme Court’s decision certainly has the capability to affect the SEP world going forward.

While much of the focus on standard-essential patent litigation issues has been focused on Microsoft-Motorola, Apple-Samsung, and the InterDigital cases, these are far from the only cases dealing with SEP issues.  District courts and the ITC continue to develop case law on SEP and RAND-related issues.

In an order issued yesterday in Realtek Semiconductor v. LSI (No. 12-cv-03451, N.D. Cal.), Judge Ronald Whyte of the Northern District of California issued a preliminary injunction that purports to prevent LSI from enforcing an ITC exclusion order until LSI has complied with its IEEE-related RAND obligations.  According to the order [LINK], this means that LSI must wait to enforce any exclusion order until: (1) the court has determined an appropriate RAND rate for LSI’s 802.11-essential patents, (2) LSI offers a license to Realtek at that rate; and (3) Realtek refuses to enter into a license at the judicially-determined RAND rate (which, as the court states, “Realtek indicates it will not do.).

With the ITC’s decision in the 337-TA-794 investigation (on the propriety of exclusion orders for FRAND-pledged essential patents) involving Samsung and Apple due by the end of the month, this is certainly an interesting development.  But given the way the ITC operates, we’re not so sure that the court’s order is going to have the desired effect.  Let’s take a look at Judge Whyte’s order, shall we?

Continue Reading District court judge issues order enjoining enforcement of ITC exclusion order pending judicial RAND determination — but does it matter? (Realtek v. LSI/Agere)

A couple months ago, Microsoft asked Judge James L. Robart to confirm that the second phase of the Microsoft-Motorola RAND breach of contract trial — in which the actual breach and damages issues will be addressed — would be tried to Judge Robart himself, and not a jury (a motion that Motorola opposed).  Microsoft claimed that Motorola had waived its right to a jury trial.  But yesterday, Judge Robart issued an order denying Microsoft’s motion, setting a jury trial to begin on August 26, 2013 on the breach of contract issues.

[2013.05.20 Order Denying Motion Confirming Bench Trial]

As support for the ruling, the court explained that Microsoft itself demanded a jury trial on the very same causes of action (breach of contract/promissory estoppel) that were asserted as counterclaims in a Motorola patent infringement action that was later consolidated with the RAND breach of contract case.  The court noted that since the actions were consolidated, “Motorola may reasonably rely on Microsoft’s demand for a jury trial on all issues, including the breach of contract issues.”  (As we have previously discussed, consolidation of the cases may also ultimately affect appellate jurisdiction in the case, too).  While Judge Robart acknowledged that “Motorola could have been more clear in its jury demand,” he explained that given the complicated mix of issues in the case, he came to the conclusion that he must give Motorola all reasonable presumptions against waiver.

So it’s up to several good citizens of the Seattle, WA area to decide whether Motorola breached its RAND obligations — this ought to be interesting.  Mark down August 26, 2013 in your calendars, folks.

A few months ago, we took note of a dispute in the Southern District of New York between two foreign makers of Universal Serial Bus (USB) products — Lotes and Hon Hai/Foxconn.  You can read our prior post for more background on the dispute, but in summary, Lotes accused Foxconn of reneging on licensing commitments that it made to the USB Implementers Forum (USB-IF), and filed a complaint in the S.D.N.Y. alleging Sherman Act antitrust violations, as well as several claims related to Foxconn’s alleged breach of RAND obligations — breach of contract, waiver, promissory estoppel, tortious interference, and declaratory judgment claims.

The court had previously denied without prejudice Foxconn’s attempts to dismiss the claims, allowing Lotes to amend its original complaint.  But earlier this week, the court granted Foxconn’s motion to dismiss all of the antitrust and RAND-related claims.

[Order Granting Motion to Dismiss (Lotes v Foxconn)]

The court first addressed the Sherman Act claims, and found that the alleged anti-competitive conduct — all of which is alleged to have occurred outside of the United States — does not present a cognizable claim under the antitrust laws.  The court cited the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA), which excludes from the Sherman Act’s reach much anti-competitive conduct that causes only foreign injury — but provides an exception where the foreign activity has a “direct, substantial, and reasonably foreseeable effect” on domestic commerce.  The court found that the effects of the alleged anti-competitive conduct were “too attentuated” to the alleged harm to the domestic USB market.  As such, the court dismissed the Sherman Act claims.

The court then dismissed all of the remainder of Lotes’s claims, because the Sherman Act claims were the only claims keeping the case in federal court.  (**WARNING – CIVIL PROCEDURE DISCUSSION AHEAD**).  The court explained that it has the duty to sua sponte (on its own) examine its subject matter jurisdiction over the case.  Originally, the court had jurisdiction over the Sherman Act claims under “federal question” jurisdiction (28 U.S.C. §§ 1331, 1337).  It had jurisdiction over the breach of contract, promissory estoppel, waiver, and tortious interference claims — which are normally state law claims — under supplemental jurisdiction (28 U.S.C. § 1367, as these claims were closely related to the antitrust claims.  (Note that this is unlike the Microsoft-Motorola case, where the court had “diversity jurisdiction” over the breach of contract claims under 28 U.S.C. § 1332, because the parties were “citizens” of different states — here, the parties were all foreign entites).  Finally, the court had jurisdiction over the declaratory judgment claims under the Declaratory Judgment Act (28 U.S.C. §§ 2201, 2202).

But once the Sherman Act claims were dismissed, this all changed.  Under Section 1367(b)(3), a court can decline to exercise supplemental jurisdiction over a claim if it dismisses all claims over which is has “original jurisdiction.”  Likewise, jurisdiction under the declaratory judgment act is permissive, not mandatory.  Having dismissed the Sherman Act claims — the only claims over which it had original jurisdiction — the court decided to get rid of the whole case altogether.

In a parting shot, the court also scolded Lotes for what it deemed a “transparent attempt to create diversity jurisdiction” by trying to add a U.S. subsidiary as a plaintiff.  The court noted that even according to the allegations in the proposed amended complaint, the subsidiary would “have no real interest” in the litigation.  Therefore, the court rejected Lotes’s request to be allowed to further amend its complaint, calling it a “blatant attempt to manufacture jurisdiction.”

Earlier this week, we noted that Apple directed the Federal Circuit’s attention to Judge Robart’s Microsoft-Motorola decision in Apple-Motorola “Posner Appeal.”  (For a recap of the parties’ FRAND-related appellate briefing in the case thus far, see our prior posts on Motorola’s opening brief and Apple’s responsive brief).  Yesterday, Motorola’s reply brief became publicly available.

[2013.05.13 Motorola Reply Brief (12-1548)]

In its brief — summarized after the jump — Motorola reiterates its prior arguments to the Federal Circuit that Judge Posner erred in concluding that Motorola could not prove entitlement to either monetary or injunctive relief as compensation for Apple’s alleged infringement.  But Motorola does not just repeat the same arguments it made in its opening brief — it also attempts to address arguments raised by Apple concerning patent hold-up and the effect of the January 2013 FTC-Google consent decree.

Continue Reading Motorola tells Federal Circuit that its prior SEP licenses were not the result of hold-up, and that injunctions must be available against “intransigent infringers” of FRAND patents

As many commentators have noted, Judge Robart’s Microsoft-Motorola decision may provide a roadmap to courts and parties in other FRAND disputes.  Not surprisingly, Apple recently brought the decision to the attention of both the Federal Circuit (in the appeal of Judge Posner’s decision to dismiss Motorola’s SEP-related claim for damages and injunctive relief) and the U.S. International Trade Commission (in Samsung’s case against Apple, in which the Commission is set to issue its Final Determination by May 31).  Here are Apple’s filings:

After the jump, a brief synopsis of how Apple characterizes Judge Robart’s decision as relevant to these proceedings.

ITC Inv. No. 337-TA-794 (Samsung-Apple)

Apple argues to the ITC that the low RAND royalties found by Judge Robart, as well as his analytical framework, are consistent with the approaches urged by Apple, not Samsung.  Apple furthermore claims that Judge Robart’s decision is evidence that district courts — not the ITC — are the proper forum for making RAND determinations.

Apple also points the Commission to the European Commission’s recent determination to issue a Statement of Objections to Motorola regarding the potential misuse of standard-essential patents, based on Motorola seeking and enforcing an injunction in Germany against Apple.  Apple asserts that the EC determination, along with the Microsoft-Motorola decision, shows that “it would be against the public interest to issue an exclusionary remedy to Samsung on declared-essential patents” in Inv. No. 337-TA-794.

By May 31, we should find out whether the Commission agrees.

Federal Circuit Appeal No. 12-1548 (Apple-Motorola)

Apple argues in its notice to the Federal Circuit that Judge Robart’s opinion and methodology is consistent with several Apple arguments.  Apple’s arguments, and the corresponding Judge Robart statements it cited as supports its arguments, are paraphrased below:

Apple argues that the district court properly held that the “purpose of the FRAND requirements is to confine the patentee’s royalty demand to the value conferred by the patent itself. Judge Robart states that “it is critical to consider the contribution of the patented technology apart from the value of the patent as the result of its incorporation into the standard, the latter of which would improperly reward the [declared Standard Essential Patent (“SEP”)] owner for the value of the standard itself. Rewarding the SEP owner with any of the value of the standard itself would constitute hold-up value and be contrary to the purpose behind the RAND commitment.”
Apple argues that to value an SEP, the district court properly focused on the cost to obtain a license “just before the patented invention was declared essential.” Judge Robart states that “parties to a hypothetical negotiation under a RAND commitment would consider alternatives that could have been written into the standard instead of the patented technology.”Also, Judge Robart states that licenses negotiated “under the threat of a potential infringement lawsuit” are not “reliable indicator[s] of a RAND royalty rate.”
Apple argues that Motorola provided no evidence that it was entitled to a large royalty award for its “trivial inventions.” Judge Robart states that a proper FRAND rate must take into account that Motorola’s SEPs “constitute only a sliver of the overall technology incorporated into” the relevant standards.

While Apple did not file a similar notice of supplemental authority in Fed. Cir. Appeal No. 13-1150 (the appeal of Judge Crabb’s dismissal of Apple’s FRAND claims against Motorola), this is because the parties have not yet begun their appellate briefing.  But Apple did file an unopposed motion for extension of time to file its opening brief in that appeal, seeking to push its due date from May 24 to July 23.  Whenever its brief gets filed, though, you can be sure that Judge Robart’s decision will be heavily cited.

Last Friday, May 10, 2013, in CLS Bank v. Alice Corp., No. 2011-1301, the Federal Circuit (en banc) issued a very divided decision in which a majority of the court affirmed that method, computer-readable medium and system patent claims on a computer-implemented invention were not patent eligible under § 101, but there was no majority consensus on the rationale as to why those claims were not patentable subject matter.  As a result, this en banc decision has no precedential value beyond the specific determination of patent eligibility for the particular claims at issue.  The fractured nature of the decision—and even intimations by judges on the court—indicate that this case may be primed for Supreme Court review.

This 135-page decision has seven separate opinions, summarized below.  A few top-level points may be gleaned from them:

Continue Reading Patent Alert: En banc Federal Circuit indecisive on patent eligibility of computer-implemented inventions (CLS v. Alice)

As many of you are aware, a non-practicing entity named Innovatio IP Ventures has been engaged in a widespread licensing and litigation campaign over WiFi-related patents that were formerly owned by Broadcom.  As a result, Innovatio has become embroiled in litigation with several suppliers of WiFi-compliant devices (Cisco, Motorola Solutions, Netgear) in the Northern District of Illinois.  A few weeks ago, we noted that a debate had arisen in that case over the “essentiality” of certain asserted patents.  The presiding judge ordered briefing on the issue, and Innovatio filed its “Essentiality Brief” a couple weeks ago — asserting that not all of its asserted claims were essential or covered by IEEE RAND obligations.  This past Friday, the WiFi Suppliers filed their response to Innovatio’s Essentiality Brief.  The WiFi Suppliers accuse Innovatio of misconstruing both the IEEE Patent Policy and the relevant RAND licensing Letters of Assurance in an attempt to avoid its RAND obligations.

[2013.05.10 Defendants’ Brief re Essentiality of Patent Claims]

We alluded in our last post on this matter that issues of patent “essentiality” — and therefore, the scope of corresponding RAND obligations — are likely to become a more common issue in standard-essential patent litigation.  The WiFi Suppliers’ responsive brief demonstrates why.

Continue Reading Scope of IEEE RAND obligations a hotly-contested issue in Innovatio IP Ventures WiFi patent litigation