Patents / Injunction Bond Wrongful Injunction Raises Presumption of Recovery of Bond

In a case of first impression, the U.S. Court of Appeals for the Second Circuit ruled that wrongfully enjoined parties are entitled to a presumption in favor of recovery against an injunction bond for provable damages.  However, the Court concluded that while InterDigital contention that it deserves damages associated with a stay of patent infringement action against Nokia has merit, the case record was insufficient for appellate review.  Nokia Corp. v. InterDigital Inc. et al., Case No. 10-1358 (2d Cir., May 23, 2011) (Parker, J.).

The parties’ dispute first arose at the International Trade Commission, where InterDigital alleged that Nokia had infringed its patents.  In 2007, the ITC granted Nokia’s motion to consolidate the investigation with a separate investigation filed by InterDigital against Samsung over the same patents.  In December 2007, Nokia moved to stay the consolidated investigation, arguing that a pre-existing agreement between Nokia and InterDigital required arbitration.  The ITC denied the motion, and Nokia then sued in federal district court.  The district court granted Nokia’s motion for a preliminary injunction in March 2008 and ordered InterDigital to stay or terminate the ITC proceedings against Nokia and submit to arbitration.  The court required Nokia to post a $500,000 bond as a condition of obtaining the injunction.

The 2d Circuit subsequently vacated the injunction (see IP Update, Vol. 11, No. 8), and the district court dismissed Nokia’s suit.  Thereafter, InterDigital filed a motion in the district court to recover attorneys’ fees and expenses incurred in moving to stay the ITC proceedings and preparing to arbitrate with Nokia.   It asked to be awarded attorneys’ fees and costs incurred as a result of litigating separate proceedings against Nokia and Samsung.  The district court rejected InterDigital’s request, finding that InterDigital had failed to show that the damages sought were “proximately caused” by the injunction.  InterDigital appealed.

The 2d Circuit held that a wrongfully enjoined party is entitled to a presumption in favor of recovery, finding that the existence of such a presumption was implied by the text of Fed. R. Civ. Pro. 65(c), and that the First, Seventh, Ninth, Eleventh and D.C. Circuits followed similar rules.  However, the court ruled that the improperly enjoined party must still show that any damages claimed were proximately caused by the injunction.  Based on the lack of explanation by the district court for the denial of recovery, the 2d Circuit vacated the lower court’s order and remanded the issue for reconsideration and clarification.  However, the 2d Circuit noted that certain legal expenses, such as filing a motion to stay the ITC case with respect to Nokia that were ordered by the district court in its injunction order, should be recoverable absent a compelling reason otherwise.

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What Were They Thinking? A Second Look at Lilly v. Sun

As we all learned years ago, when trying to make sense of Lilly v. Barr, if a Fed. Cir. decision wrestles with obviousness-type double patenting, it will be a labor of Hercules to reason it out. But the majority of the Fed. Cir. really blew it in Eli Lilly v. Sun Pharma. Ind., 611 F.3d 1381 (Fed. Cir. 2010), both in the original decision and in denying en banc review. Newman, Rader, Lurie and Linn made up the minority in that vote, and when those four agree on something, attention must be paid.

But I  don’t feel that much attention was paid. Maybe the decision was too close to the holidays. Maybe folks just thought, “Just another case of Lilly trying to evergreen the patent protection on a blockbuster drug [gemcitabine].” I got re-interested in the decision when I read the amicus brief filed by the Washington Legal Foundation in support of Lilly’s petition to the Supreme Court to grant cert. Although I have dipped my toe in the sometimes murky waters of this right-wing think tank in the past- I summarized the Supreme Court’s decision in Pioneer Hi-Bred v. JEM –  they are usually more interested in supporting suits to reverse “Obamacare” or to i.d. illegal immigrants. Whatever your political leanings, its amicus brief was well-written (even if it never used the term “obviousness-type double patenting” and framed the question too broadly). In any case, it got me to re-consider just how bad the panel decision was.

It is a little hard to follow the timeline of the filings of the two patents in question without a timeline, but I will try. To begin with, both patents issued out of pre-GATT filings and so got 17 years from their issue dates. The “oldest patent application” was filed in 1983 claiming gemcitabine (“gem”) and its use as an anti-viral (Of course this was at the beginning of the AIDS epidemic). Lilly subsequently discovered that gem was an effective anti-cancer drug (now Gemzar) but, instead of just filing a CIP of its pending application disclosing, and perhaps claiming, the new use, they ALSO filed an original application on the same day (Dec. 4, 1984) claimed the new use. The “oldest patent application” claiming gem issued as the ‘614 patent on Feb. 28, 1989 and Lilly got PTE, so that it did not expire until May 15, 2010. Lilly did not file a divisional on the use of gem to treat cancer, although this would have been a pre-GATT filing and given Lilly a lot of extra patent term.

Instead, Lilly simply prosecuted the second application until it issued on November 11, 1995,  claiming the use of gem to treat cancer. This pre-GATT filing will not expire until November 7, 2012. Lilly thought it was all set until then. But Sun got the Fed. Cir. to find the second ‘826 patent invalid for obviousness-type double patenting on the basis that the claimed use was disclosed – but never claimed – in the soon to expire ‘614 patent. Somehow the panel found that Lilly’s approach led it into the deadly swamp of obviousness-type double patenting, and would be an improper extension of patent term to let the ‘826 patent expire later than the ‘614 patent.

I am not going to argue the panel’s position. I can’t. But let’s take a quick look at Lilly alternatives. The best one would have been to have never filed the second “cancer” application. The CIP with claims to gem and to two distinct uses would surely have drawn a restriction requirement. If Lilly simply obtained  the  ‘614 patent to gem and then filed a divisional to treating cancer in 1989, the second patent would probably have had the same term as the invalidated ‘826 patent (if it issued on about the same date, November 7, 1995).(Note that it does appear that Lilly might have slowed down the prosecution of the ‘826 patent to get maximum term, but Lilly could have done the same thing with the hypothetical divisional.) The divisional would not have be subjected to an obviousness type double patenting rejection. End of story.

Lilly had yet  another option. Lilly could have not filed a CIP at all (Lilly got nothing useful out of it), but simply obtained the ‘614 patent to gem based on its anti-viral utility. Lilly could have still filed the second application disclosing the cancer treatment in 1984 and prosecuted it to obtain the ‘826 patent. Now there would be no disclosure of the cancer treatment in the ‘614 gem patent, and no basis on which to find the ‘826 patent “guilty” of obviousness-type double patenting.

I can’t speculate on why Lilly chose the course it did, but if 4 of the most scientifically-learned Fed. Cir. judges would not have seen an obviousness-type double patenting defense to infringement coming, Lilly can hardly be blamed. The Washington Legal Foundation framed the question: “Whether the [Fed. Cir.] erred by holding that the mere description of an invention in a patent renders a  subsequently-claimed invention invalid.” That was not the holding below, but WLF was on point in starting out with a quote from Miller v. Eagle Mfg. Co., 151 U.S. 186 (1984): “[A] later patent may be granted where the invention is clearly distinct from, and independent of, one previously patented.”

Oracle Ordered to Reduce the Number of Patent Infringement Claims against Google

Judge William Alsup of the U.S. District Court in San Fransisco has ordered Oracle Corporation to reduce the number of patent infringement claims against Google, Inc., from 132 to three.  At the same time, Google has been told to narrow its prior art invalidity defenses as well, from hundreds to eight.

Back in August of last year, Oracle leveled seven Java-related patents against Google’s Android software development kit. The patents, owned by Oracle America, are: United States Patents Nos. 6,125,447; 6,192,476; 5,966,702; 7,426,720; RE38,104; 6,910,205; and 6,061,520, originally issued to Sun. The complaint alleges that Google has been aware of Sun’s patent portfolio, including the patents at issue, since the middle of this decade, when Google hired certain former Sun Java engineers.

Time To Review Your Company’s Consumer Disclosures?

A series of recent federal court decisions highlight the importance of making sure your company’s online consumer disclosures are robust and accurate. If done properly, they just might help you avoid a class-action lawsuit.

In Berry v. Webloyalty.com, Inc., the court dismissed a putative nationwide consumer class action, concluding that the company’s business practices were not unfair or misleading as a matter of law because of the company’s disclosures. Slip Opinion, No. 10-1358 (S.D. Cal. Apr. 11. 2011).

The case involved “post-transaction marketing,” the practice of presenting a consumer with an offer from a third party after the primary transaction has been completed. This type of marketing generally involves a data-sharing arrangement, where the company completing the primary transaction passes data to a second company for marketing purposes. After the consumer takes some further action (e.g., entering an email address, checking a box and clicking “yes”), the second company charges the consumer for a new product or service using the payment information provided to the first company.

This practice has been criticized by certain legislators and officials at the Federal Trade Commission. Last December, Congress passed and the President signed the Restore Online Shoppers’ Confidence Act into law, targeting online post-transaction marketing; the law now requires additional disclosures to be made and prohibits third-party sellers from charging consumers for goods or services without the consumer’s express consent and from receiving certain financial information obtained during the initial transaction.

Notwithstanding any public debate over the propriety of these marketing practices, several federal courts have granted motions to dismiss in post-transaction marketing cases based on the companies’ disclosures. The most recent example is Berry, where the court took judicial notice of the company’s disclosures and ultimately dismissed the case, concluding that no reasonable consumer could have been misled, given the disclosures that were made.

After reviewing the online disclosures and terms of service, the court in Berry held that “the explicit and repeated disclosures that defendants made in their enrollment page suffices to defeat” all of the plaintiffs’ claims, including fraud, invasion of privacy and violations of the Electronic Communications Privacy Act, Electronic Funds Transfer Act and California’s Unfair Competition Law. Slip Op’n at 9. The court explained that by completing his transaction after receiving such disclosures, plaintiff had consented to the conduct about which he complained. Id. Although the plaintiff claimed he did not understand he would be charged for the third party’s product (here a membership club providing discounts on products and services), the court emphasized that the enrollment page disclosed more than five times that, by signing up, plaintiff would be charged $12 per month after an initial thirty-day trial period. Id. at 10.

Bsed on these disclosures, the court granted the defendants’ motion to dismiss, thus ending the case and potentially saving the companies millions in discovery costs and other expenditures.

Other federal courts have reached similar conclusions. In Baxter v. Intelius, Inc., No. 09-1031, (C.D. Cal. Sept. 16 2010), the court granted a motion to dismiss, concluding that “[t]he disclosures combined with the affirmative steps for acceptance are sufficient that, as a matter of law, the webpage is not deceptive.” Similarly, in In re Vistaprint, Marketing and Sales Practices Litigation, No. 08-1994 (S.D. Tex. Aug. 31, 2009), aff’d, No. 09-20648 (5th Cir. Aug. 23, 2010), the court held that a “consumer cannot decline to read clear and easily understandable terms that are provided on the same webpage in close proximity to the location where the consumer indicates his agreement to those terms and then claim that the webpage, which the consumer has failed to read, is deceptive.”

A key factor in each of these cases was the courts’ willingness to examine the company’s online disclosures in connection with a motion to dismiss. In each case, the plaintiffs opposed any review of the disclosures, arguing that they were outside the four corners of the complaint and may not be authentic. In Baxter and Vistaprint, the court rejected the argument because plaintiffs came forward with nothing to challenge the authenticity of the disclosures. In Berry, the court took the extraordinary step of allowing discovery on the authenticity and accuracy of the disclosures before ruling on the motion to dismiss. When the plaintiffs were unable to offer any evidence that the disclosures were not authentic, the court considered them in connection with the motion to dismiss and granted the motion.

These cases highlight two strategies that could help your company reduce the risk of class-action lawsuits.

First, the cases demonstrate that, even for controversial business practices, robust consumer disclosures may provide an effective defense against a consumer class-action lawsuit.

Action Step: Consider conducting a comprehensive review of your company’s consumer disclosures to evaluate whether your company is adequately protected and in compliance with existing law.

Second, the cases demonstrate the importance of being able to provide a court with accurate copies of the disclosures individual consumers saw and in a form that is subject to judicial notice in connection with a motion to dismiss.

Litigating a class action can be incredibly expensive and risky. One effective way to mitigate the risk is to have a strategy for defeating them at the earliest stages of the case, preferably on a motion to dismiss. But if you cannot provide accurate copies of the actual disclosures made to the named plaintiff, the court may be unwilling to consider them on a motion to dismiss and you may have lost one of your company’s most effective weapons against class actions.

Action Step: Consider reviewing your company’s systems for documenting consumer transactions to ensure you can provide accurate copies of consumer disclosures for any given transaction.

Two Respondents Receive Show Cause Order In Inv. No. 337-TA-763 – International Trade Commission

Chief ALJ Luckern issued an order to show cause why two respondents, Koko Technology Ltd. and Cyclone Toy & Hobby, should not be found in default in Inv. No. 337-TA-763, Certain Radio Control Hobby Transmitters and Receivers and Products Containing Same.  The respondents failed to respond to the complaint by April 4, 2011 and the Chief ALJ has required both respondents to respond to the show cause order by May 12, 2011.

False Patent Marketing: What You Need to Know

Patentees should implement an effective patent marking program to maximize the recovery of damages resulting from patent infringement. However, in view of recent U.S. District Court and Federal Circuit decisions, such patent marking programs must be periodically reviewed to guard against false marking.

Patent Marking

Federal law specifies that patentees give notice to the public that a patented article be “marked” by affixing to the article the word “patent,” or its abbreviation, “pat.,” followed by the relevant patent number. 35 U.S.C. § 287. Failure to mark the patented article precludes the recovery of infringement damages until notice is given to the infringer. Id. If marking the patented article itself is impractical, then the patentee should mark the packaging of the patented article. Id. The statute does not apply to patented methods.

When the claims of only a single patent cover the patented article, the marking of that patented article, or its packaging, is straightforward. However, when the claims of several patents cover the patented article, compliance with the patent marking statute is more difficult, because the patentee must determine which patent numbers should be affixed to the patented article.

False Patent Marking

False patent marking has been traditionally asserted when the patent marker is alleged to mark articles, either with an incorrect patent number or with a patent number that does not cover the article, and with the intent to deceive the public. Such false patent marking, prohibited under 35 U.S.C. § 292(a), is believed to “wrongfully quell competition…thereby causing harm to the [United States] economy.” Stauffer v. Brooks Bros., Inc., 619 F.3d 1321, 1324 (Fed. Cir. 2010). As provided under the statute, false marking is punishable by a fine of not more than $500 for every such offense. 35 U.S.C. § 292(a) Section (b) of this statute provides for a qui tam suit in which anyone may sue for the penalty and share in half of any judgment with the federal government. 35 U.S.C. § 292(b).

Recently, the false patent marking statute has been asserted against patentees that have failed to remove expired patent numbers from their patented articles. Patentees have attempted to defend against these lawsuits by claiming that just “anyone,” without a false marking injury, lacks standing. However, the Federal Circuit has recently confirmed that the statute provides broad standing for anyone to bring suit on behalf of the federal government. Brooks Bros., 619 F.3d at 1325 (emphasis added). Patentees have also unsuccessfully attempted to lessen the impact of any potential damages by arguing that the $500 fine is per decision and not per article. The Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295, 1304 (Fed. Cir. 2009) (holding that the fine is $500 per article).

In view of the increase in false patent marking litigation, patentees should establish steps to limit exposure to false marking lawsuits while observing the need to mark their patented articles. As a first step, patented articles should be regularly audited after marking to ensure that the marked patents have not expired or that the claims of the marked patents covering the articles have not been held invalid or been amended in post-grant proceedings to no longer cover the articles. As a second step, patentees should implement a plan for the timely removal of non-compliant patent numbers that are affixed to their articles, even if such removal is not immediate. Consultation with a patent attorney regarding proper patent marking as well as the execution of a written plan to audit marked patent numbers and timely remove non-compliant patent numbers may limit exposure to false marking litigation by creating at least some “credible evidence that [the patentee’s] purpose was not to deceive the public.” Peguignot v. Solo Cup Co., 608 F.3d 1356, 1363 (Fed. Cir. 2010).

The patent law is ever-changing, and future false marking litigation may be curtailed by a patent reform bill pending before Congress and/or by current appeals to the Federal Circuit challenging the constitutionality of the qui tam actions. Nonetheless, patentees should implement a proper patent marking program to maximize the recovery of any patent infringement damages while steering clear of any false marking.

Walker Digital Files 15 Patent Suits Against More Than 100 Companies

As reported by PC Magazine (Priceline Founder Goes on Patent Lawsuit Binge, Sues Apple, Google, More), Walker Digital filed 15 patent suits Tuesday against more than 100 companies, including Microsoft, eBay, Amazon, Facebook, WalMart, Groupon, Apple, Sony and Google.

Look for a post here soon describing the patents.  In the meantime, there is a list of the suits and the patents in each below:

Docket Number* Case Name Date Filed Patents
1:2011-cv-00311 Walker Digital LLC v. Google Inc. et al 04/11/2011 7801802
1:2011-cv-00315 Walker Digital LLC v. Amazon.com Inc. et al 04/11/2011 7236942
1:2011-cv-00312 Walker Digital LLC v. MasterCard International Incorporated 04/11/2011 60187186434534

7430521

6144948

1:2011-cv-00320 Walker Digital LLC v. American Airlines Inc. et al 04/11/2011 61381056601036
1:2011-cv-00314 Walker Digital LLC v. Citigroup Inc. et al 04/11/2011 61637717844550
1:2011-cv-00322 Walker Digital LLC v. Activision Blizzard Inc. et al 04/11/2011 59701435768382
1:2011-cv-00318 Walker Digital LLC v. Myspace Inc. et al 04/11/2011 58842705884272
1:2011-cv-00313 Walker Digital LLC v. Facebook Inc. et al 04/11/2011 78314707827056
1:2011-cv-00308 Walker Digital LLC v. Compasslearning Inc. et al 04/11/2011 59477476616458

7483670

1:2011-cv-00310 Walker Digital LLC v. Arrow Security Inc. et al 04/11/2011 67209907593033

7602414

7605840

7719565

7817182

1:2011-cv-00319 Walker Digital LLC v. e2interactive Inc. et al 04/11/2011 6381582
1:2011-cv-00316 Walker Digital LLC v. Avaya Inc. et al 04/11/2011 64872916222920
1:2011-cv-00309 Walker Digital LLC v. Apple Inc. et al 04/11/2011 6199014
1:2011-cv-00321 Walker Digital LLC v. Ayre Acoustics Inc. et al 04/11/2011 6263505
1:2011-cv-00317 Walker Digital LLC v. BuyWithMe Inc. et al 04/12/2011 62497726754636

7039603

7689468

1:2011-cv-00326 Walker Digital LLC v. Cannon U.S.A. Inc. et al 04/12/2011 7924323

*(All cases were filed in the United States District Court for the District of Delaware)

Patent Litigants — the 25% Rule is Dead!

In patent infringement cases, damages are often calculated by determining a reasonable royalty rate for the use of the protected invention.  Typically, such damages are calculated based upon a hypothetical negotiation for a license between the patent owner and the infringer at the time the infringement began.  For many years, patent litigants and courts alike have attempted to calculate such a royalty by using the “25% Rule” to approximate the reasonable royalty rate that the infringer/licensee would be willing to offer to pay to the patent owner during the hypothetical negotiation. Generally, the 25% Rule suggests that the infringer/licensee pay a royalty rate equivalent to 25% of its expected profits for the product that incorporates the intellectual property at issue, with the remaining 75% belonging to the infringer/licensee for its development, operational and commercialization risks, contributions of other technology / IP, etc.

On January 4, 2011, however, the Federal Circuit issued a decision in the Uniloc v. Microsoft case.  While the decision involves a wide variety of issues, one stands out as having the most potential impact. In short, the Federal Circuit held that the 25% Rule is no longer acceptable for damage calculations.  The Court noted that the Rule “is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation.”  Evidence based upon the Rule is now inadmissible at trial.  Accordingly, the 25% Rule is dead!

Background

Uniloc is the owner of Patent No. 5,490,216 (the ‘216 patent), a patent directed a software registration system to deter copying of software.  In the suit, Uniloc alleged that Microsoft’s product activation feature that acts as a gatekeeper to Microsoft’s Word XP, Word 2003, and Windows XP software programs infringed the ‘216 patent.  The jury agreed, finding that Microsoft not only infringed the patent, but did so willfully.  The jury also awarded Uniloc $388 million in damages, relying on the testimony of Uniloc’s expert, who opined that damages should be $564,946,803 based on a hypothetical negotiation between Uniloc and Microsoft as a starting point and later relying upon certain factors first set forth in Georgia-Pacific Corp. v. U.S. Plywood Corp. (the Georgia-Pacific factors).

Using an internal Microsoft document relating to the value of product keys, Uniloc’s expert applied the 25% “rule of thumb” to the minimum value reported ($10 each), obtaining a value of $2.50 per key.  After applying the Georgia-Pacific factors, which he concluded did not modify the base rate, he multiplied it by the number of new licenses to Office and Windows products, producing the $564,946,803 million amount.  He then confirmed his valuation by using the Entire Market Value Rule, i.e., checking it against the total market value of sales of the Microsoft products (approximately $19 billion), noting that it represented only 2.9% of the gross revenue of the products.

In various post-trial motions, Microsoft asked the District Court to reverse many of the jury findings and asked for a new trial on the issue of damages based upon the alleged improper use of the 25% Rule and the Entire Market Value Rule.  In a lengthy decision, the District Court granted Microsoft’s motion with regard to the Entire Market Value Rule, but denied Microsoft’s motion with regard to the use of 25% Rule.  Both parties filed appeals on different grounds to the Federal Circuit.

Damage Calculations

On appeal, the Federal Circuit rejected the use of the 25% Rule to calculate patent damages even though it acknowledged that in the past the “court has passively tolerated its use where its acceptability has not been the focus of the case.”   The Court held:

This court now holds as a matter of Federal Circuit law that the 25 percent rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation. Evidence relying on the 25 percent rule of thumb is thus inadmissible under Daubert and the Federal Rules of Evidence, because it fails to tie a reasonable royalty base to the facts of the case at issue.

The court based its reasoning on Fed. R. Ev. 702 and the Daubert standard for expert testimony, concluding that general theories are only permissible if the expert adequately ties the theory to the specific facts of the case.  Under the cases of Kumho Tire Co. v. Carmichael and General Electric Co. v. Joiner, the Court noted that “one major determinant of whether an expert should be excluded under Daubert is whether he has justified the application of a general theory to the facts of the case.”  According to the Court, the application of the 25% Rule is improper because there was no link between the rule and the specific case.  The Court noted:

The 25 percent rule of thumb as an abstract and largely theoretical construct fails to satisfy this fundamental requirement. The rule does not say anything about a particular hypothetical negotiation or reasonable royalty involving any particular technology, industry or party.

In addition to the above, the Court pointed to the lack of testimony by Uniloc’s expert suggesting that the starting point of a 25% royalty had any relation to the facts of the case, and thus the use of the rule was “arbitrary, unreliable and irrelevant,” failing to satisfy the Daubert standard and tainting the jury’s damages calculation.

Based upon the forgoing, the Court granted Microsoft a new trial on damages.  The ultimate result remains to be seen.  Notwithstanding, litigants and their experts are now advised that mere reliance upon “rules of thumb,” such as the 25% Rule, are no longer acceptable. Care should be taken when performing damage calculations to ensure that the conclusions made correspond to the facts of the case, and that the evidentiary burdens are met.