Common Sense Variation Is Unpatentable

Affirming the district court’s grant of summary judgment of invalidity, the U.S. Court of Appeals for the Federal Circuit held that a common-sense variation of known technology is unpatentable.   Odom v. Microsoft Corp., Case Nos. 11-1160 (Fed. Cir., May 4, 2011) (Lourie, J.).

In August 2008 James Odom brought suit against Microsoft, alleging infringement of its patent directed to both a method for manipulating groups of “tools” in “toolbars” commonly found in computer software applications, as well as to the ability to use the divider to hide or display selected tools, by Microsoft’s Office 2007, a suite of office productivity software.  During the litigation, Odom’s counsel withdrew from the case and, failing to retain new counsel, Odom moved to dismiss his claims without prejudice.  The district court granted Odom’s request to dismiss but declined to dismiss Microsoft’s declaratory judgment counterclaims.  Microsoft subsequently moved for summary judgment of non-infringement and invalidity.

The district court granted Microsoft’s motions for summary judgment, holding that the asserted claims of the patent were invalid for obviousness and not infringed by Office 2007.   In so finding, the court stated that the asserted claims presented “one of the clearest” cases of obviousness that had come before it because Odom had simply “cobbled together various pieces of what was already out there in a manner … that would have been obvious to anyone skilled in the art at the time of the invention.”  Odom appealed.

On appeal, Odom argues that the district court erred in its obviousness analysis by looking at separate pieces of the claimed invention rather than the invention as a whole, by impermissibly applying hindsight in determining obviousness, and argued that the manipulatable sections of the composite toolbar disclosed in the prior art are very different from the claimed tool groups.  The Federal Circuit disagreed.  The Court found that user-manipulatable toolbars (which can be customizing according to user preferences and which include groups of command buttons’ or toolbars) were known in prior art at the time the patent in suit was filed.  The Court found that the only difference between the prior art and the patent in suit was that the groups of tools claimed in the patent are on a single toolbar.  Citing KSR, the Court held that this difference “is an insignificant advance.”

Since it would have been a trivial change for a person of skill in the art designing such alterable tool groups to add an indicator that could indicate any altered condition of the tool group, the Federal Circuit concluded that the district court did not err in determining that the manner in which patent divides up toolbars into groups, and the claimed manipulation of tool groups, would have been a common sense variation for a person of skill in the art.

The Federal Circuit also rejected Odom’s arguments of secondary considerations and reiterated that weak secondary considerations generally do not overcome a strong prima facie case of obviousness.

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California Court of Appeal Holds That State Courts Have Jurisdiction Over Securities Act Class Actions Unless the Action Is a “Covered Class Action” and Involves a “Covered Security” Under SLUSA

In Luther v. Countrywide Financial Corp., No. B222889, 2011 WL 1879242 (Cal. App. 2d Dist. May 18, 2011), the California Court of Appeal for the Second District reversed the dismissal of a class action asserting a claim under Section 11 of the Securities Act of 1933 (“Securities Act”), 15 U.S.C. § 77k. The trial court had sustained a demurrer on the ground that the court lacked jurisdiction by operation of the federal Securities Litigation Uniform Standards Act of 1998 (“SLUSA”). The Court of Appeal interpreted SLUSA to establish exclusive federal court jurisdiction only over “covered class actions” that involve a defined “covered security.” Because the securities in this case did not fit within that definition, the Court held, the state court had concurrent jurisdiction over the case. The Luther decision draws a fine distinction in SLUSA between class actions that may be removed to federal court and class actions as to which the federal courts have exclusive jurisdiction, thereby distinguishing decisions from other jurisdictions that appeared, at least on their face, to reach a contrary conclusion.

In Luther, investors who had purchased mortgage-backed securities from Countrywide Financial Corporation (“Countrywide”) filed a class action complaint in California Superior Court against Countrywide and certain of its officers alleging that they made false and misleading statements in registration statements and prospectus supplements related to the securities they had purchased. Plaintiffs’ complaint was based exclusively on alleged violations of the Securities Act.

The Securities Act, as originally enacted, provided for concurrent jurisdiction in state and federal courts and barred removal of claims filed in state court.  In 1998, in an attempt to address perceived abuses in securities class actions, Congress enacted SLUSA to, among other things, amend the Securities Act to vest federal courts with exclusive jurisdiction over certain Securities Act class actions. Defendants demurred to the complaint by invoking SLUSA, arguing that the state court lacked jurisdiction because plaintiffs’ lawsuit was a “covered class action” over which the federal courts had exclusive jurisdiction. The California Superior Court for the County of Los Angeles sustained the demurrer.

The Court of Appeal reversed. The Court began by observing that in order for a class action to be subject to exclusive federal jurisdiction under SLUSA, it must be a “covered class action” and implicate a “covered security.” To support its conclusion, the Court examined the language of Section 22(a) of the Securities Act, 15 U.S.C. § 77v(a), which states:

The district courts of the United States and the United States courts of any Territory shall have jurisdiction of offenses and violations under [the Securities Act] and under the rules and regulations promulgated by the Commission in respect thereto, and, concurrent with State and Territorial courts, except as provided in Section 16[15 USC § 77p] of this title with respect to covered class actions . . . .

Applying the rules of statutory construction, the Court then noted that Section 22 (i) does not say that there is an exception to concurrent jurisdiction for all covered class actions; (ii) references Section 16 in its entirety (which requires both a “covered class action” and a “covered security” for exclusive federal jurisdiction); and, (iii) reading the statute as a whole, Section 16 specifies that a lawsuit must involve a “covered security” for it to be removable to federal court. On this basis, the Court reasoned that:

[n]othing . . . in section [16] describes this case, and . . . nothing in section [16] puts this case into the exception to the rule of concurrent jurisdiction . . . the fact that the case is not precluded and can be maintained, but cannot be removed to federal court if it is filed in state court, tells us that the state court has jurisdiction to hear the action.

Although defendants cited dicta from several federal district court decisions that supported their argument that all “covered class actions” are subject to exclusive federal jurisdiction (seee.g., Knox v. Agria Corp., 613 F. Supp. 2d 419 (S.D.N.Y. 2009)), the Court of Appeal distinguished each because they all involved “covered securities” and concerned removal jurisdiction. The Court also countered by citing contrary authorities.

The Court recognized that that “SLUSA was enacted to stem the shift from federal to state courts and to prevent certain State private securities class action lawsuits alleging fraud from being used to frustrate the objectives of” the Private Securities Litigation Reform Act of 1995.  Nonetheless, the Court held, “an intent to prevent certain class actions does not tell us that this class action, or all securities class actions must be brought in federal court.”

In Luther, the parties did not dispute that the action was a “covered class action” which did not concern a “covered security.” Under the Court of Appeal’s interpretation of SLUSA, this was dispositive for purposes of the exclusivity of federal jurisdiction.

Joint (Direct) Infringement Still Requires Control … But Stay Tuned

A sharply divided panel of the U.S. Court of Appeals for the Federal Circuit, addressing the requirements for direct infringement if more than one party performs the steps of the patented method, ruled that the doctor-patient relationship was insufficient to show that the patient was acting under the direction or control of the doctor.   McKesson Techs. Inc. v. Epic Sys. Corp., Case No. 10-1291 (Fed. Cir. Apr. 12, 2011) (Linn, J.) (Bryson, J. concurring) (Newman, J., dissenting).

McKesson’s patent is directed to a method of electronic communication between healthcare providers and patients involving personalized web pages for doctors and their patients.  Epic’s MyChart software allows healthcare providers to associate medical records with a personalized web page.  Epic did not directly use the software, but licensed MyChart to doctors  who provided the software as an option for their patients’ use.  McKesson sued Epic for inducement of infringement.  Both McKesson and Epic agreed that the first step of McKesson’s method claim (“initiating a communication”) was performed by the patient, while the remaining steps were performed by doctors.  McKesson alleged that this was sufficient to attribute the “initiating a communication” step to the doctors.  The district court disagreed and granted summary judgment in favor of Epic.  McKesson appealed.

The panel affirmed the district court’s ruling, stating that under BMC Resources v. Paymentech (see IP Update, Vol. 10, No. 10), Muniauction v. Thomson (see IP Update, Vol. 11, No. 7) and Akamai Techs. v. Limelight Networks (see IP Update Vol. 14, No. 1), which was vacated by an en banc order (see IP Update, this edition), there can only be joint infringement if there is an agency relationship between the parties who perform the method steps or when there is a contractual obligation on the part of one party to the other to perform the steps.   The patients were not agents of the doctors, nor did the doctors require their patients to use the software; therefore, the panel rejected McKesson’s argument that the doctor-patient relationship gave the doctor effective control over the “initiating a communication” step.

Judge Newman, in dissent, attacked the entire line of precedent beginning with BMC Resources, arguing that the limitations on the finding of joint infringement announced in that case contradicted both prior Federal Circuit and Supreme Court precedent and holding that previous cases had taken the position that direct infringement could be performed by two parties acting in concert, regardless of whether there was any sort of agency or other relationship between the parties.  Seemingly inviting a request for rehearing en banc, the dissent noted that these prior cases “never had an en banc reversal” and therefore should be considered the law of the circuit until an en banc panel found otherwise.

Judge Bryson’s concurrence also seemed to invite a request for rehearing en banc, noting that “the decision in this case is correct in light of this court’s decision in BMC Resources, Muniauction and Akamai Technologies.  Whether those decisions are correct is another question, one that is close enough and important enough that it may warrant review by the en banc court in an appropriate case.”

Practice Note:

As of the time of press, McKesson’s expedited consideration of a request for a rehearing en banc was granted and the Federal Circuit issued an en banc order identifying the following questions to be addressed:

1.      If separate entities each perform separate steps of a method claim, under what circumstances, if any, would either entity or any third party be liable for inducing infringement or for contributory infringement?  See Fromson v. Advance Offset Plate, Inc., 720 F.2d 1565 (Fed. Cir. 1983).

2.      Does the nature of the relationship between the relevant actors—e.g., service provider/user; doc-tor/patient—affect the question of direct or indirect infringement liability?

On April 20, 2011, the Federal Circuit granted en banc review of its decision in Akamai (see IP Update, this edition) on essentially the same issue.