Specification Must Sufficiently Describe Claimed Invention to Show Possession of Claimed Subject Matter

Reversing a grant of summary judgment holding that patents covering claims to a beverage can and a method for making a beverage can were invalid for failure to satisfy the written description requirement and being anticipated, the U.S. Court of Appeals for the Federal Circuit concluded that under the “problem solution” analysis of Revolution Eyeware, the patent in issue satisfied the written descriptive requirement by providing multiple solutions to the stated problem and that a genuine issue of material fact existed as to whether a prior art reference inherently disclosed elements of the claims.   Crown Packaging Tech., Inc. v. Ball Metal Container Corp., Case No. 10-1020 (Fed. Cir. April 1, 2011) (Whyte, J., N.D. Cal., sitting by designation) (Dyk, J, concurring-in-part and dissenting-in-part).

Crown Packaging sued Ball Metal Container asserting infringement of two patents sharing a common specification that related to beverage cans that use less metal, based on the connection of the can end to the can body.   The district court granted Ball a summary judgment ruling of invalidity, finding that the patents in suit failed to satisfy the written description requirement and were anticipated under principles of inherency.   The district court found that the asserted claims cover driving a chuck either inside or outside of the reinforcing bead of the lid, but the specification only supports driving a chuck outside of the reinforcing bead at the end of the can, thus failing to satisfy the written description requirement.  Further, the district court found that a published Japanese patent application anticipated the asserted claims, with at least one claim limitation being inherently disclosed.  Crown Packaging appealed.

The Federal Circuit began the analysis by reviewing the written description requirement.  Citing Ariad Pharms., Inc. v. Eli Lilly & Co. (see IP Update, Vol. 12, Nos. 5  and 9) the Court noted that the test for the written description requirement is “whether the disclosure clearly ‘allow[s] persons of ordinary skill in the art to recognize that [the inventor] invented what is claimed.”  Put another way, the disclosure must convey that “the inventor has possession of the claimed subject matter as of the filing date.” Possession is shown by the specification disclosing what is claimed.  The Court noted that the originally filed claims are part of the specification and often satisfy the written description requirement.

The Court, distinguishing the enablement requirement from written description, agreed with Crown Packaging that the specification taught two different ways to address the problem of reducing metal usage in beverage cans and that the specification does not require the use of both methods in all instances.  Since the patents in suit teach two separate ways to save metal and the original claims show that Crown Packaging recognized that two independent ways to save metal were disclosed in the patent, the written description requirement was satisfied.

Turning to the issue of anticipation, the Federal Circuit found that the experts’ reports materially differed regarding the disclosure of the prior art Japanese patent application, thus summary judgment was  inappropriate in this case, as a genuine issue of material fact existed.

Judge Dyk dissented in part, writing that the patents should be invalid for failing to satisfy the written description requirement.   Judge Dyk found that specification did not teach the combination of elements found in the claims, and thus, the patents should be invalidated.   Judge Dyk wrote that Revolution Eyewear v. Aspex Eyewear requires “explicit disclosure of the embodiments in the claims.”  In his view, “[t]he fact that the claims are broad enough to cover such an invention or imply that the claims cover such an invention is not sufficient when the invention itself is not described either in the claims or elsewhere in the specification.”

No Likelihood of Confusion or Dilution Between CITIBANK and CAPITAL CITY BANK

Although the majority of the relevant likelihood of confusion factors favored an opposer, the U.S. Court of Appeals for the Federal Circuit affirmed the Trademark Trial and Appeal Board’s denial of an opposition filed by opposer Citigroup Inc. against four service mark applications filed by Capital City Bank (CCB).   Citigroup Inc. v. Capital City Bank Grp., Inc., Case No. 10-1369 (Fed. Cir., March 28, 2011) (Gajarsa, J.)

Citigroup began using the mark CITIBANK in 1897 and adopted “Citibank” as its official company name in 1967.   Citigroup owns multiple federally registered trademarks for financial services containing the CITI prefix, including CITI, CITICORP and CITIBANK.   Many of Citigroup’s registrations have become “incontestable,” and the CITIBANK brand has been recognized as one of the most valuable brands in the world.  Capital City Bank Group offers banking services through 69 branches in three U.S. states.  Capital City Bank Group applied to register four marks, including CAPITAL CITY BANK, CAPITAL CITY BANK INVESTMENTS, CAPITAL CITY BANK GROWING BUSINESS and CAPITAL CITY BANC INVESTMENTS.  As standard character marks, the applications were not limited to a particular font style, size, color or design element.

Citigroup filed a notice of opposition with the TTAB against each of CCB’s applications, alleging likelihood of confusion with and likelihood of dilution of its CITIBANK marks.   The TTAB treated all four applications as one for evaluating likelihood of confusion under the DuPont factors.  The TTAB found that four of the six relevant factors favored Citigroup, namely, the fame of the CITIBANK marks, the similarity of the parties’ financial products and services, the similarity of the parties’ trade channels and the similarity of the parties’ target customers.  However, the TTAB determined that no likelihood of confusion or dilution would result from registration of CCB’s marks because the two remainingDuPont factors, i.e., the nature and extent of any actual confusion and the similarity of the marks, favored applicant CCB.

On appeal, Citigroup challenged the TTAB’s factual determinations concerning actual confusion and the similarity of the parties’ marks.   The Federal Circuit affirmed the TTAB’s finding that the similarity of the marks factor favored applicant CCB, as the record detailed the distinctive spellings of the parties’ marks and common third-party usage of the phrase “City Bank” within the banking industry.  Concerning actual confusion, the Court found again that substantial evidence, namely the concurrent use of the respective marks in the same geographic markets since 1975, supported the TTAB’s finding of an absence of actual confusion.  Finally, the Court also rejected Citigroup’s approach of “mechanically tallying” the DuPont factors as improper, holding in accordance with Federal Circuit precedent, that not all of the DuPont factors are necessarily relevant in every case and that any one of these factors may control.

Lockwood Cert Petition Seeks Clarification of Redress for Alleged “Sham” Reexamination Request

In a Petition for Writ of Certiorari dated April 28, 2011, inventor Lawrence B. Lockwood and his company, PanIP, LLC, requested review of the judgment of the Federal Circuit denying its petition for rehearing and rehearing en banc.  (The underlying order of the Court of Appeals was issued Nov. 15, 2010, and is reprinted at Lockwood v. Sheppard, Mullin, Richter & Hampton, LLC, No. 2010-1189, 2010 WL 4721220 (Fed. Cir. Nov. 15, 2010).)

Mr. Lockwood alleges that the Sheppard, Mullin firm and certain individual attorneys “initiated without a reasonable basis, in a fraudulent and deceptive manner, and with the aim of depriving [Lockwood], the patent holder and an inventor of computerized sales systems, of his right to enjoy the fruits of two of his patents.”  Mr. Lockwood formed PanIP, LLC, and exclusively licensed his patent portfolio to it.  By May 2003, PanIP had entered into “licensing relationships with over twenty-five companies, headquartered in fifteen different states, and was in negotiation with many others.”

Mr. Lockwood alleges that respondents “filed the alleged sham and deceptive [reexamination] petitions with the aim of depriving [Lockwood] of his right to enjoy the fruits of his patents.”  Mr. Lockwood alleges certain misrepresentations of ‘prior art’ references, such as a manual that he claims was not prior art because it was “an unpublished, confidential manual dated well after the date at which it might have been available as prior art to the ’319 Patent under any reasonable construction of federal patent law.”

Mr. Lockwood further maintains that the alleged sham reexamination requests resulted in reexaminations which hampered his ability to “license, sell or enforce his property rights during a key period of extreme market growth in electronic commerce.”  He ultimately dropped his licensing program to defend his patents.

Mr. Lockwood ultimately prevailed in the reexamination when his patents were confirmed some four years after the initial reexamination request.  In 2009, he filed suit in U.S. District Court for the Central District of California, asserting state law claims of malicious prosecution, fraud and interference with prospective economic advantage, based on U.S.C. 1338 (after the California Court of Appeal earlier dismissed those claims for lack of jurisdiction and holding that the claims are subject to the exclusive jurisdiction of the federal courts due to substantial issues of patent law).  Shortly after he filed and “without opportunity for oral argument or any discovery or other proceedings on the merits,” the district court granted Sheppard, Mullin’s (defendants’) Motion to Dismiss, with prejudice under Fed. R. Civ. P. 12(b)(6).  Among other things, a preemption argument was successfully argued by the law firm.

Mr. Lockwood appealed the preemption holding to the Federal Circuit and oral argument was held on November 4, 2010, but the Federal Circuit affirmed the district court without an opinion in a per curiam order.  The Federal Circuit also denied Lockwood’s petition for rehearing and rehearing en banc on January 28, 2011.

This petition for certiorari to the Supreme Court followed.  It requests that the Supreme Court:

(1) resolve a split among circuit courts regarding the limits of federal preemption of state laws protecting against harm involving misconduct before federal agencies;

(2) decide whether preemption doctrine based on “fraud on the agency” should apply to the U.S. patent system, thereby allowing state law claims where they present no obstacle to congressional intent and their is no existing federal remedy for the harm addressed by the state law claim; and

(3) in the alternative, to vacate the lower court’s decision and remand to the Federal Circuit for reconsideration supported by an opinion.

This petition presents one party’s serious questions about the patent reexamination system and about preemption.  However, I must admit that it is impossible for me to assess the accuracy of the allegations based on this petition and without a great deal more information.  It will be interesting to see what action the Supreme Court decides to take based on this petition.

I want to thank Mr. Raymond A. Mercado, a doctorial student in political science at Duke University, for bringing this case and petition to our attention.

You Cannot “Game” the Appellate System by Filing a “Protective” Cross-Appeal

Believing that an appellee’s cross-appeal following a favorable judgment was nothing more than an attempt to get the upper hand in the appeal, the U.S. Court of Appeals for the Federal Circuit granted a motion to dismiss a cross-appeal, finding the cross-appeal improper because, if successful, it would not expand the scope of the judgment in appellee’s favor.  Aventis Pharma S.A. v. Hospira, Inc., Case No. 11-1047 (Fed. Cir., Mar. 24, 2011) (Moore, J.).

In separate actions, Aventis Pharma sued Hospira and Apotex for infringement of patents relating to drugs used to treat certain types of cancers.  The cases were consolidated and the district court ruled in favor of the defendants, finding that all the asserted claims were invalid for obviousness and unenforceable due to inequitable conduct.  The district court, however, rejected Apotex’s assertion that some of the claims were invalid for double-patenting.

After Aventis appealed, Apotex filed a “protective” cross-appeal, allegedly aimed at preserving its right to challenge the district court’s double-patenting ruling should the Federal Circuit reverse the invalidity and unenforceability rulings. Subsequently, Aventis asked Apotex to withdraw the cross-appeal. After Apotex refused, Aventis moved to dismiss the cross-appeal.

The Federal Circuit granted Aventis’ motion.  The Court noted that “[a] cross-appeal may only be filed ‘when a party seeks to enlarge its own rights under the judgment or to lessen the rights of its adversary under the judgment,’” The Court noted that parties should not be permitted “to game the system by filing a cross-appeal to obtain the final word: this is neither fair to the appellant nor an efficient use of the appellate process.”

The Federal Circuit rejected Apotex’s argument that Federal Circuit policy is in conflict with other circuits, characterizing other circuits’ allowance for conditional cross-appeals “as a means to raise additional arguments which do not expand the scope of the judgment.” The Federal Circuit noted it offers the same opportunity, albeit in a different form, by “requir[ing] parties to raise such arguments in their primary briefing.”

The court explained that under its precedent “as a general matter … a finding of invalidity means there is ‘no basis for a cross-appeal’ of non-infringement or additional claims of invalidity.”  The Federal Circuit acknowledged that the court has not sua sponte struck every improperly filed cross-appeal, but found that “[t]his infrequent leniency is not an invitation to flaunt our practice and precedent, and the improper use of a cross-appeal directly contrary to our precedent may meet with sanctions.”

Practice Note:    At the Federal circuit, an invalidity decision in a lower court leaves no room for the successful defendant to file a contingent cross-appeal as to infringement or other validity issues.

Claim Construction: Too Much Structure Will Spoil the Brew

In affirming-in-part grants of summary judgment on non-infringement by two separate district courts, the U.S. Court of Appeals for the Federal Circuit reiterated the role of a district court in claim construction is to give meaning to the limitations actually contained in the claims, “not to redefine claim recitations or to read limitations into the claims.”  American Piledriving Equip., Inc. v. Geoquip, Inc., Case Nos. 10-1283, -1314 (Fed. Cir., Mar. 21, 2011) (Linn, J.).

American Piledriving filed suit against Geoquip in the Eastern District of Virginia and separately against Bay Machinery in the Northern District of California alleging that each infringed its patent by selling piledrivers manufactured by Hydraulic Power Systems.   The patent in issue relates to counterweights for “vibratory” piledrivers, which rely on vibrations to drive piles into the ground.   The representative claim recites, inter alia, a limitation requiring “counterweights having a cylindrical gear portion and an eccentric weight portion integral with said cylindrical gear portion, said eccentric weight portion having at least one insert-receiving area formed therein.”

A Markman hearing was held in each case and each of district courts consistently construed the term “integral” to mean “formed or cast of one piece.”

The district courts diverged, however, on their construction of “eccentric weight portion” and “insert-receiving area.”   The California district court construed “eccentric weight portion” to mean “the bottom portion of the counterweight, which extends forward from the front face of the gear portion, containing more weight than the top portion due to its larger mass, including at least one insert receiving area formed therein to receive at least one solid tungsten rod.”   The Virginia district court construed the same term to mean “that portion of the counterweight that extends either forward or rearward from the front or back face of the gear portion such that it shifts the center of gravity radially outward from the gear’s rotational axis.”

With regard to the term “insert-receiving area,” the Virginia district court construed that term to mean “a bore located, at least in part, within the eccentric weight portion that is shaped to hold securely a solid insert member,” whereas the California district court construed the same claim language to mean “a bore formed in the eccentric weight portion of the counterweight, which extends fully through the gear portion and fully through the eccentric weight portion of the counterweight capable of receiving a solid tungsten rod.”

In both the California and Virginia actions, the defendants moved for, and the district courts granted, summary judgment of non-infringement.   The summary judgment grants were based on each court’s constructions of the disputed phrases “integral,” “insert-receiving area” and “eccentric weight portion.”   American Piledriving appealed.

On appeal, American Piledriving argued that the district courts misconstrued these three terms.   The Federal Circuit affirmed the Virginia court’s construction of each of these claim terms, as well as the California court’s construction of “integral” (which was identical to that of the Virginia court).

In upholding the Virginia constructions, the Federal Circuit found that the California constructions imported unnecessary limitations into the construction of “eccentric weight portion” and “insert-receiving area.”   In its analysis, the Court reviewed the claims, the specification and the file history as it related to each of these terms.   With regard to both “eccentric weight portion” and “insert-receiving area,” the Court found that there was no support in the intrinsic evidence for the additional structural limitations imported by the California district court.

The Federal Circuit affirmed both of the district court’s grants of summary judgment of non-infringement with regard to the accused products.

Judicial Economy Is Not a Trump Factor in Deciding Transfer Motions

The U.S. Court of Appeals for the Federal Circuit granted a petition for writ of mandamus and ordered a suit to be transferred out of the Eastern District of Texas to the Northern District of Texas.  The panel concluded that all parties would experience greater convenience in that forum when litigating the plaintiff’s claims.  In re Verizon Business Network Services, Inc., Misc. Order 956, 2011 WL 1026623 (Fed. Cir., Mar. 23, 2011) (Linn, J.).

Applying Fifth Circuit law, the Federal Circuit reviewed the district court’s balancing of public and private convenience factors under 28 U.S.C. §1404(a).  Notably, the presiding magistrate Judge had also found that Dallas (in the Northern District of Texas) would be a more convenient venue than Marshall (in the Eastern District of Texas), but nevertheless ordered that the case remain in Marshall as a result of a previous lawsuit brought in the same court, by the same plaintiff, roughly five years earlier.  The district court emphasized that keeping the case in Marshall would enhance judicial economy because the court had developed an in-depth understanding of the claimed technology by construing 25 terms in the earlier case.  Thus, the district court concluded that the identified “built-in efficiencies” were not outweighed by the facts relevant to the private interest factors and the issuance of a reexamination certificate years after the earlier case had settled. Verizon sought mandamus at the Federal Circuit.

The Federal Circuit’s precedential order departed from the district court’s reasoning most significantly on the issue of judicial economy.   The Court found the connection with the earlier suit against Level 3 Communications, Inc. (settling in 2003) to be “distant” and “too tenuous a reason” to keep the case in Marshall.   The panel also reversed on the relevance of the reexamination certificate, noting that this portion of the file history was not part of the record when the patent was construed in 2003 and the U.S. District Court for the Eastern District of Texas would have to not only familiarize itself with the reexamination materials, but also relearn the underlying technology.

As the Court noted in the order, this case is distinguishable from another recent decision weighing the influence of judicial economy in a transfer analysis.  In In re Vistaprint Ltd., (see IP Update, Vol. 13, No. 12) the Federal Circuit affirmed a decision to keep the case in the Eastern District of Texas where the district court had already construed the asserted patent and was also presiding over co-pending litigation involving the same plaintiff and the same claims.  Here, the Federal Circuit makes clear that claim construction will not afford a patent owner a “free pass” to maintain all future litigation in the venue where the first claim construction issued, especially if there are not related cases before the same judge.

Practice Note:   The Federal Circuit analogized the facts in this case to the facts presented in In re Volkswagen of Am., Inc.   (see IP Update, Vol. 11, No. 11)  As in Volkswagen, the panel noted that many of the witnesses reside within 100 miles of the Dallas courthouse and that the plaintiff, Red River Fiber Optic Corp., had no legitimate connection to Marshall.  (The plaintiff conceded it operated from Oklahoma.)  The reasoning in this case, however, goes a step farther in offering specific guidance that the efficiencies gained through adjudication of a previous suit must still be appropriately weighed against other competing considerations such as cost, time, and travel for identified witnesses.

False Marking Claims Must Be Pled with Specificity as to Intent

The U.S. Court of Appeals for the Federal Circuit settled a split among the district courts when it held that false patent marking claims must be pled with particularity under Fed. R. of Civ. Pro. 9(b).   In granting the defendant’s petition for a writ of mandamus, the Federal Circuit held that the district court should have dismissed a false marking complaint for failure to plead, with particularity, the circumstances of defendant’s alleged intent to deceive the public.   In re BP Lubricants USA Inc., Misc. Docket No. 960 (Fed. Cir., Mar. 15, 2011) (Linn, J.).

The plaintiff had included in its complaint allegations that BP was a “sophisticated company” having experience applying for, obtaining and litigating patents.   Based on that categorization, the plaintiff claimed BP “knew or should have known” that the patent had expired.   The district court concluded that the complaint satisfied the requirements of Rule 9(b) because it had pled the who, how, what and when of the alleged fraud.  BP sought mandamus at the Federal Circuit.

The Federal Circuit clarified that in all cases sounding of fraud or mistake, Rule 9(b) requires the plaintiff to plead “with particularity the circumstances constituting the fraud or mistake.”   The Court noted that Rule 9(b) acts as a “safety valve to assure that only viable claims alleging fraud or mistake are allowed to proceed to discovery.   … Permitting a false marking complaint to proceed without meeting the particularity requirement of Rule 9(b) would sanction discovery and adjudication for claims that do little more than speculate that the defendant engaged in more than negligent action.” The Court stated that the district court erred in denying BP’s motion to dismiss because it expressly relied on the plaintiff’s general allegations that BP knew or should have known that the patent expired. The Court explained that a complaint must provide some objective indication to reasonably infer that the defendant was aware that the patent expired.  Accordingly, general allegations that the defendant is a “sophisticated company” and that it “knew or should have known” that the patent expired are insufficient under Rule 9(b).

The Court went further and provided exemplary allegations with which a court may reasonably infer an intent to deceive, “[alleging that a] defendant [had] sued a third party for infringement of a patent after the patent had, e.g., expired or made multiple revisions of the marking after expiration” may set forth facts upon which intent to deceive can be reasonably inferred.

PTO’s Prima Facia Case – In Re Jung

The U.S. Court of Appeals for the Federal Circuit has affirmed that an examiner meets the requirements for establishing prima facie invalidity where the examiner provides the statutory basis of the rejection and the references relied upon in a sufficiently articulate and informative manner as to meet the notice requirement under 35 U.S.C. § 132.  In re Jung et al., Case No. 10-1019 (Fed. Cir., March 28, 2011) (Linn, J.).

After the examiner issued an office action, rejecting all claims of Jung’s application for anticipation or single-reference obviousness, Jung responded by arguing that the claimed “well-charge-level controller” was different from the reset controller of the prior art.  The examiner finally rejected all claims, noting that he found Jung’s argument unpersuasive and finding the claimed well-charge-level controller to be the same as the prior art reset controller.  Jung appealed to the Board of Patent Appeals and Interferences (the Board).

In the appeal, Jung argued that the claimed “well-charge-level controller” must “more or less continuously adjust the control signal inputs of active charge source and/or active charge sink” as disclosed in one embodiment and thus is different from the reset controller disclosed in the prior art.  The Board, however, construed the claimed “well-charge-level controller” as “any component that controls the charge level of a well.” In response to Jung’s request for rehearing, the Board rejected Jung’s argument that the Board erred in failing to address whether the examiner had set forth a prima facie rejection.  Jung appealed to the Federal Circuit.

On appeal, Jung argued that the examiner failed to make a prima facie case of anticipation.  Jung argued that establishing a prima facie case requires more than just a notice under §132 and that theprima facie case requirement is not met unless the examiner provides a reasonable construction and evidence bridging the facial differences between that reasonable claim construction and the purported anticipatory reference.  Further, instead of arguing that the Board’s decision constituted a new ground of rejection, Jung argued that the Board acted as a “super-examiner” by performing independent fact-finding and applying an improperly deferential standard of review to the examiner’s rejections.

In rejecting Jung’s prima facie invalidity argument, the Court ruled that “[t]here has never been a requirement for an examiner to make an on-the-record claim construction of every term in every rejected claim and to explain every possible difference between the prior art and the claimed invention in order to make out a prima facie rejection.”   Further, the Court wrote, “there is no reason to impose a heightened burden on examiners beyond the notice requirement of §132.”  The Court found that the examiner’s discussion of the theory of anticipation, the prior art and the identification of where each limitation of the rejected claims is shown in the prior art by specific column and line number was more than sufficient to meet the burden.

In rejecting the “super-examiner” argument (as applied to the Board), the Court ruled that the findings by the Board were simple factual assertions and the same as the examiner’s findings.  The Court further ruled that “[t]o assert that the Board’s thoroughness in responding to his explanation put it in the position of a ‘super examiner’ would limit the Board to verbatim repetition of the examiner’s office actions, which would ill-serve the Board’s purpose as a reviewing body.

Split Within Federal Circuit On Preemption In Ownership Disputes

The U.S. Court of Appeals for the Federal Circuit has denied a petition for rehearing en banc of its panel decision in Abraxis Bioscience v. Navinta LLC (see IP Update, Vol. 13, No. 11>) regarding the applicable rule of law to apply in patent ownership dispute standing issues.  Concurring and dissenting opinions were filed by several members of the Court.  Abraxis Bioscience v. Navinta LLC, Case No. 09-1539 (Fed. Cir., Mar. 14, 2011) (per curiam) (concurring opinion by Gajarsa, J. joined by Linn, J. and Dyk, J.) (dissenting opinion by O’Malley, J. joined by Newman, J.).

The problem with title to the patent in suit arose from a series of mergers and asset acquisitions carried out in relatively quick succession. In chronological order, the inventors assigned ownership to Astra Lakemedel Aktiebolag (Astra L) and AB Astra. AB Astra then merged into AstraZeneca AB (AZ-AB). Astra L and AZ-AB later (in late 2007) assigned ownership to their parent, AstraZeneca (AZ-UK), but not before plaintiff Abraxis had entered (on April 26, 2006) into an asset purchase agreement (APA) with AZ-UK. Thus, even at closing on June 28, 2006, when AZ-UK made a present assignment of its ownership to Abraxis in an IP assignment agreement included in the closing documents, AZ-UK did not have legal title to the patents, which had not yet been assigned to AZ-UK by its subsidiaries Astra L and AZ-AB. When the oversight was corrected in late 2007, Abraxis had already filed its complaint against Navinta.

Although patent law is often thought to be exclusively federal, in fact many disputes over patent ownership turn on common law rules of contract and property that, at least since Erie Railroad v. Tompkins, have been considered state rather than federal.  Last November, a split panel of the Federal Circuit vacated a district court finding of infringement by generic drug maker Navinta on the grounds that the plaintiff Abraxis had not properly transferred ownership of the asserted patents prior to the filing of the complaint.  Abraxis Bioscience v. Navinta LLC (seeIP Update, Vol. 13, No. 11).  In that decision, the panel majority recognized limited federal preemption of state law in interpreting contracts of assignment.  Unfortunately for Abraxis, the APA provided only that AZ-UK “shall cause” the assignment of ownership to Abraxis. In accordance with the Federal Circuit precedent of DDB Techs. (2008) (which applies to the interpretation of assignment), the Court found that such an assignment does not operate as a present assignment of rights, but rather as a promise to assign in the future.

The dissent from the original panel opinion (by Judge Newman) and the dissent from rehearing en banc by Judge O’Malley (joined by Judge Newman) argue that the application of New York state law by the district court (which upheld Abraxis’s claim to ownership) was correct and that the majority was overextending the reach of federal jurisdiction.

Practice Note:  The concurring and dissenting opinions in connection with the rehearing en banc petition expose differences at the Court on the choice of law for interpretation of patent assignments. The precise rule of law (the issue of when an assignment is a present assignment or a promise of a future assignment) invoked by the panel majority is now under consideration by the Supreme Court in Stanford v. Roche (see IP Update, Vol. 13, No. 11).

In that case, the Federal Circuit vacated a judgment against Roche because the inventor had made only a promise to assign.  The Supreme Court agreed to review is directed to the issue of whether the Bayh-Dole Act (which permits transfer of title of federally funded inventions to universities) trumped common law rules of property. The Federal Circuit decision applied the rule of DDB without comment on the preemption of state by federal law.

In advising buyers in a merger, counsel should make closing contingent upon clear documentation of chain of title from any subsidiaries to the seller, so that a present assignment at closing includes all the bargained-for rights.

Petition Granted for Rehearing en banc of Akamai Technologies v. Limelight Networks

On April 20, 2011, the Federal Circuit granted the petition by Akamai Technologies for rehearing en banc its appeal in Akamai Technologies, Inc. v. Limelight Networks, Inc.  The order vacated the earlier opinion of December 20, 2010.  The order includes a request to file new briefs addressing this question:

If separate entities each perform separate steps of a method claim, under what circumstances would that claim be directly infringed and to what extent would each of the parties be liable?

This question asks for a definition of what constitutes joint infringement and how to apportion liability.  Joint infringement is based on a theory is that one acts as a “mastermind” who orchestrates the infringement and that the activities of the other joint infringer(s) must be under the “direction and control” of the mastermind.  The result is as if the mastermind performed the infringement by itself.  BMC Res., Inc. v. Paymentech, L.P., 498 F.3d 1378, 1380 (Fed. Cir. 2007).

The latest tests for what constitutes “direction and control” have been selective.  For example, the court in BMC Resources referenced a legal principle that imposed “vicarious liability on a party for the acts of another in circumstances showing that the liable party controlled the conduct of the acting party.”  And in the Akamai opinion of December 20, 2010 (just vacated), the Federal Circuit panel had set forth a standard that required an agency relationship between the parties.  It reiterated that joint infringement occurs when a party is contractually obligated to the accused infringer to perform its part of the method, according to cases like Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008)  and BMC.

Questions of joint infringement are encountered frequently in patent litigation of software, e-commerce, and internet-related inventions.  It is not uncommon to find method claims reciting a step or two that a consumer or other user of the system might perform.  Consequently, it can be difficult to prove “direction and control” for a lot of software/internet method patents that involve more than one actor to perform the recited method steps (typically a consumer plus at least one other actor).  Accordingly, patent prosecutors endeavor to draft claims that require actions by a single actor whenever possible to avoid the extra hurdle that such cases have made to proof of joint infringement.  Of course, there are times when this is difficult to do because software systems are always evolving and it can take years for patents to issue.

Patents that have method claims requiring activities by multiple actors to infringe may not easily be corrected with reexamination, since valid claim amendments in reexamination cannot broaden claim scope.  Such corrections can be made in a broadening reissue application, but it must be filed within two years of issue of the original patent.

We shall have to wait for the decision of the en banc Court (and any resulting new law) to determine the best way to correct claims in view of any changes to joint infringement law.

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.

New Directions in the Federal Circuit: Motivation to Combine

Through two recent panels, both including Judge Lourie, the Federal Circuit expanded upon the Supreme Court’s leading obviousness case, KSR International Co. v. Teleflex, Inc., 550 U.S. 398 (2007), finding motivation to combine references to render the patents-in-suit invalid as obvious. Both panel decisions indicate the Federal Circuit’s increasing readiness to find motivation to combine, even when explicit motivation is not present in the references.

Moreover, in both cases the Court ruled on motivation to combine without the benefit of expert testimony, perhaps illustrating a growing willingness to decide obviousness on summary judgment. Both cases involved simple mechanical inventions, however, so it remains to be seen whether the Federal Circuit will apply its apparent openness to determining obviousness on summary judgment to more complicated technologies that may require the assistance of experts.

Wyers v. Master Lock Co.1

In Wyers v. Master Lock Co., 616 F.3d 1231 (Fed. Cir. 2010), cert. denied the Federal Circuit, reversing a jury decision that three trailer hitch lock patents were valid and infringed, found that even in the absence of expert testimony, judges can make a common sense determination to combine the prior art to find patent claims obvious and thus invalid. Prior to Wyers, the Federal Circuit rarely relied on common sense as the basis for finding a motivation to combine prior art. Wyers confirms that successful obviousness challenges are possible without expert testimony. On February 22, 2011, the Supreme Court declined to grant Wyers’ petition for a writ of certiorari.

Tokai Corp. v. Easton Enterprises, Inc.

InTokai Corp. v. Easton Enterprises, Inc.,—F.3d—, 2011 WL 308370 (Fed. Cir. 2011), the Federal Circuit in a split decision affirmed a grant of summary judgment which found the patents-in-suit to be invalid as obvious. Tokai’s March 3, 2011 petition for panel rehearing and rehearing en banc is pending.

Tokai’s patents relate to automatic child-safety mechanisms for safety utility lighters. Judge Lourie wrote for the majority:

It would have been obvious to one of ordinary skill and creativity to adapt the safety mechanisms of the prior art cigarette lighters… to fit a utility lighter as disclosed by [the prior art], even if it required some variation in the selection or arrangement of particular components.

The Court concluded that “the undisputed facts in this case – including the state of the prior art, the simplicity and availability of the components making up the claimed invention, and an explicit need in the prior art for safer utility lighters – compel a conclusion of obviousness.” The Court also affirmed the exclusion of expert declarations because Tokai failed to submit expert reports.

Impact of Wyers and Tokai

These decisions support a summary judgment strategy for invalidity claims in three ways: (1) by making it easier to find a motivation to combine, (2) by not requiring expert testimony to establish a motivation to combine and, (3) in cases where a strong prima facie case of obviousness is established, by making it difficult for secondary considerations to save the patents. “[T]he ultimate inference as to the existence of a motivation to combine references may boil down to a question of ‘common sense,’ appropriate for resolution on summary judgment,” Wyers, 616 F.3d at 1240, and “expert testimony concerning motivation to combine is unnecessary and, even if present, will not necessarily create a genuine issue of material fact.” Id. at 1239, citing KSR, 550 U.S. at 427.

Tokai also makes it challenging for a simple mechanical patent to withstand an obviousness challenge particularly when there is a known need.

For a more in-depth look at this issue, please click here.

Sanctions May Be Awarded for Violation of Injunction, Even Absent Infringement

On April 20, 2011, the Federal Circuit unanimously revised the two-step test set forth in KMS Fastening Systems for determining when a contempt order is appropriate for an alleged violation of an injunction by a modified product.  However, a divided court affirmed the finding of contempt of injunction and sanctions, but vacated and remanded findings of contempt of infringement, pending a finding on the issue of “colorable difference” between previously adjudicated infringing devices and devices incorporating an alleged design-around.

A unanimous U.S. Court of Appeals for the Federal Circuit revised the two-step test set forth in KMS Fastening Systems for determining when a contempt order is appropriate for an alleged violation of an injunction by a modified product.  However, a divided (7-5) court affirmed the district court finding of contempt of injunction and sanctions, but vacated and remanded findings of contempt of infringement, pending a finding on the issue of “colorable difference” between previously adjudicated infringing devices and devices incorporating an alleged design-around.  TiVo, Inc. v. EchoStar Corp. et al., Case No. 09-1374 (Fed Cir. April 20, 2011) (en banc) (Lourie, J.)( Dyk, J., dissenting in part, joined by Judges Rader, Gajarsa, Linn, and Prost).

At trial, the district court issued a permanent injunction against EchoStar, ordering EchoStar to stop making, using, offering to sell and selling digital video receivers (DVRs) that had been found infringing.  The district court further ordered EchoStar to disable DVR functionality in existing receivers.  Following an appeal on unrelated issues, during which time EchoStar modified its DVRs in an attempt to avoid infringement, TiVo moved the district court to find EchoStar in contempt of the original injunction.  The district court ruled that EchoStar was in contempt because the modified DVRs continued to infringe, despite EchoStar’s attempts at redesign.  The district court additionally found that even if EchoStar had succeeded in a non-infringing design-around, it would still have been in contempt because it had not complied with the disablement provision of the injunction.  The district court held that the disablement provision extended to all digital video recording functionality and not just infringing functionality.

New Rules for Contempt Proceedings Involving Modified Products

In the unanimous portion of the decision, the Federal Circuit held that, with regard to contempt for violation of the infringement provision, a defendant’s diligence and good faith efforts at a design around are not a viable defense, the propriety of a contempt proceeding need not be a separate determination from an inquiry regarding continued infringement, and, for a contempt analysis, a newly accused device must be more than colorably different from the previously adjudicated infringing devices, and must, under the same claim construction used earlier, actually infringe the asserted patent claims.  The unanimous en banc court also held that when deciding whether a modified product should be subject to contempt proceeding versus a new trial on infringement, the district court should determine whether there is more than a colorable difference between the newly accused device and the previously adjudicated infringing devices focusing on the portions of the accused product that were the basis for the prior finding of infringement.

The court explicitly overruled its prior (1985) KSM Fastening System standard characterizing it as “unworkable.”  The prior rule involved a two-part inquiry requiring a district court to first assess whether the redesigned devices are colorably different from the adjudged infringing devices to determine whether a contempt hearing is appropriate.  Then, if a contempt hearing is deemed appropriate, the district court had to determine whether the redesigned devices did in fact constitute a contempt; i.e., an infringement.

The en banc court has eliminated the initial colorable difference determination in order to assess whether contempt proceedings are proper.  Under the new standard, courts have broad discretion to consider modified products in the context of a contempt proceeding, so long as the movant provides “a detailed accusation … setting forth the alleged facts constituting the contempt.”  However, the “colorable difference” standard still applies to evaluation of whether an injunction against patent infringement has been violated.  Thus, for a contempt finding, a newly accused device must both actually infringe the asserted claim(s) and must not be more than colorably different from the previously adjudicated infringing devices.  The court pointed out that the contempt analysis must first focus on the “differences between the features relied upon to establish infringement and the modified features of the newly accused products.”  If it is determined that the modification is significant, the newly accused device is necessarily more than colorably different.  Thus, unless the newly accused device is deemed to not be more than colorably different from the originally adjudicated infringement, an assessment of whether the modified device infringes is irrelevant for the purpose of contempt.

                Merits Issue Raises Vigorous Dissent

On the merits of the present case, the majority found that with regard to contempt for violation of the disablement provision vagueness (of the original order) does not operate as a defense, and failure to raise the issue of an on direct appeal prevents later use of overbreadth as a defense.  The dissent criticized the holding that lack of clarity does not operate as a defense to contempt and the holding that the district court should determine whether there is a colorable difference between the newly accused devices and the previously adjudicated infringing devices.

                “Good Faith”

As for “good faith” as a defense to contempt, despite EchoStar’s assertion that it employed 15 engineers for 8,000 hours to redesign software and obtained a non-infringement opinion from a reputable law firm, the court concluded that “a defendant’s diligence and good faith efforts are not a defense to contempt.”  However, the court noted that diligence and good faith efforts may be a factor in mitigating any penalties imposed by the district court.

                “Colorable Differences”

On the issue of “colorable differences” between the modified DVRs and those found to infringe, the majority concluded that this is a fact issue to be determined on remand.  The dissent, on the other hand, insisted that replacement of the sole feature that had been accused (in the original infringement action) of satisfying a limitation with a substantially different feature not known in the prior art necessarily results in devices that are more than colorably different.  Thus, the dissent concludes that a remand on this issue is not necessary.


On the issue of vagueness as a defense to contempt, the majority held that vagueness does not operate as a defense to contempt for violation of an injunction, such as the disablement provision.  According to the majority, EchoStar could not violate the injunction and later object to a finding of contempt because it had opportunities to present vagueness on appeal or through a motion to the district court to clarify or modify the injunction.  The majority also disagreed with EchoStar’s assertions of vagueness, concluding that the “most natural reading” demanded that the term “Infringing Products” extended to particular models, even in instances where the infringing features are eliminated from those models, because those models are collectively referred to as “Infringing Products” in the injunction.  The dissent vigorously criticizes this holding, noting that extension of the term “Infringing Products” to non-infringing devices is contrary to the use of the term elsewhere in the injunction, and to the logic used by the district court.  Finally, the dissent noted that interpretation proposed by the majority is contrary to policy favoring design-arounds.  The dissent also attacked the majority’s position that vagueness does not operate as a defense to contempt.


On the issue of overbreadth and EchoStar’s argument that an injunction in a patent infringement suit cannot prohibit non-infringing design-arounds, the majority held that EchoStar’s failure to raise the issue on direct appeal prevents EchoStar from using overbreadth as a defense to contempt.  The dissent questions whether the district court has the authority to issue an injunction barring design-arounds, noting that without an explicit indication of such intent, “no reasonable attorney would read the disablement provision as barring design-arounds because such an injunction would likely exceed the district court’s authority.”

EchoStar intends to seek review by the Supreme Court of the United States.

Federal Circuit Decision in In re Tanaka

On April 15, the Federal Circuit reversed the BPAI decision and remanded the matter for further proceedings in accordance with the opinion.  The Federal Circuit held  that a patent owner that retains original patent claims and adds new narrower claims in a reissue application does indeed present a type of error correctable by reissue under 35 U.S.C. § 251.  

The Federal Circuit relied on precedent from the CCPA decided in 1963:

Nearly a half century ago, our predecessor court, the Court of Customs and Patent Appeals, clearly stated that adding dependent claims as a hedge against possible invalidity of original claims “is a proper reason for asking that a reissue be granted.”  In re Handel, 312 F.2d 943, 946 n.2 (CCPA 1963). The basis for the reissue application in Handel was nearly identical to that in this case. The patentee had mistakenly failed to include narrow claims that he had a right to claim and later sought reissue to obtain those narrower claims without proposing to cancel any broader claims encompassing the claims sought to be added. The proposed reissue claims differed from the existing claims simply by the inclusion of additional limitations.

Judge Giles S. Rich wrote the Handel decision reversing the Board’s rejection of the reissue application. He explained that the reissue claims involved subject matter disclosed in the specification and thus were properly directed to “the invention disclosed in the original patent.” Id. at 944. In a footnote, Judge Rich remarked that “[t]he term ‘inoperative’ has been construed to mean inoperative adequately to protect the invention, which may be due to failure of the solicitor to understand the invention.” Id. at 945 n.2 (quoting McGrady, Patent Office Practice 309 (4th ed. 1959)). . . .  Thus “[t]he narrower appealed claims are simply a hedge against possible invalidity of the original claims should the prior use be proved, which is a proper reason for asking that a reissue be granted.” Id.

The Federal Circuit cited other precedent, such as an earlier case favoring the claiming of species in reissue.  The Federal Circuit also invoked the use of narrower claims to clarify the meaning of the issued broader claims by reliance on the doctrine of claim differentiation:

This court, however, has recognized that “each claim is a separate statement of the patented invention.”  Pall Corp. v. Micron Separations, Inc., 66 F.3d 1211, 1220 (Fed. Cir. 1995). And each claim of a patent has a purpose that is separate and distinct from the remaining claims. Claims of narrower scope can be useful to clarify the meaning of broader, independent claims under the doctrine of claim differentiation. Phillips v. AWH Corp., 415 F.3d 1303, 1314 (Fed. Cir. 2005). And dependent claims are also less vulnerable to validity attacks given their more narrow subject matter. Thus, the omission of a narrower claim from a patent can render a patent partly inoperative by failing to protect the disclosed invention to the full extent allowed by law.

The Federal Circuit dismissed concerns that the public would be disadvantaged by subsequent addition of narrower claims, since that was already addressed by the equitable intervening rights statute (35 U.S.C. § 252).Judge Dyk dissented with the majority.  He opined that none of the cited cases squarely addressed the issue at hand.  Judge Dyk relied on the Supreme Court decision in Gage v. Herring, 107 U.S. 640 (1883) to find support for the Patent Office’s position that if the original claims are maintained, there is no adequate error for a reissue application:

The applicants here attempt to do virtually the same thing as in Gage. By retaining the original claims without alteration or amendment, the applicants have admitted that there was no error in the original patent. The fact that no error is being corrected here, as in Gage, makes reissue unavailable in this case

Judge Dyk’s dissent also found that the present case lacked proper surrender of the original patent:

Here, the addition of the dependent claims has no impact on the applicants’ rights under the original patent. The original claims were not changed, and the addition of new claims has no effect on the applicants’ rights under the original claims. The applicants effectively attempt to retain their rights under original patent while securing a second patent which covers the subject matter of the dependent claims.

This is, moreover, directly contrary to another aspect of the reissue statue, which requires “surrender of [the original] patent.” 35 U.S.C. § 251. As a condition of reissue, § 251 requires that the applicant relinquish any claim to the original patent—”the patentee has no rights except such as grow out of the reissued patent.” Eby v. King, 158 U.S. 366, 373 (1895). Here, the applicants surrender nothing; they attempt to retain their rights under the original patent in their entirety.

Regardless of whether you agree with the majority or the dissent, this decision does provide the patent owner another avenue of correction of patent rights and an attempt to maintain a claim of past damages via preservation of the original patent claims.  To avoid past damages, the burden is on the defendant to prove invalidity of any original claims that may be infringed and to show “substantive amendment“ of the originally claimed subject matter in any newly added narrower claims that might survive invalidity and yet still at least arguably be infringed.

Updates on Transfers in the Eastern District of Texas

1. Microsoft: Transferred from Texas to Washington State 

In November 2010, the Federal Circuit ordered a case transferred out of the Eastern District of Texas in In re Microsoft Corporation, No. 2010-M944 (Fed. Cir. Nov. 8, 2010). This is one of a line of cases attempting to transfer lawsuits out of one of the most frequently selected forums for patent infringement claims.

Over the course of the last two years, the Federal Circuit has redefined the landscape for cases brought before the U.S. District Court for the Eastern District of Texas by nonpracticing entities (NPEs—sometimes referred to as “patent trolls”). Specifically, since the Fifth Circuit issued its en banc decision providing new guidance on the standard for transferring cases in In re Volkswagen of America, Inc., 545 F.3d 304 (5th Cir. 2008) (en banc), the Federal Circuit has found ample opportunity to interpret that case and apply its holdings to patent infringement actions in the Eastern District of Texas. Based on the Volkswagen case, the Federal Circuit has granted numerous mandamus petitions forcing the Eastern District of Texas courts to transfer cases out of that district.1  The Federal Circuit in In re Microsoft Corporation rejected another argument that plaintiffs have relied on to keep their cases in the Eastern District of Texas.

In the underlying district court case, plaintiff Allvoice Developments (Allvoice) filed a patent infringement action against Microsoft Corporation in the Eastern District of Texas alleging infringement of patented speech recognition technology based on functionality found in certain Microsoft operating systems. Allvoice incorporated its company in Texas just 16 days before filing the suit against Microsoft and maintains a physical office in Tyler, Texas (located in the Eastern District). However, Allvoice has no employees at its Tyler office or anywhere in the United States. Microsoft sought transfer to the Western District of Washington, where Microsoft’s headquarters and a substantial number of employees are located. Microsoft indicated that all of its witnesses knowledgeable with the sales, marketing, and product direction for its accused products reside in the Western District of Washington, and all of the relevant documents and evidence relating to the marketing, development, and design of the accused products are also in that district.

The district court denied transfer based in large part on the fact that Allvoice was incorporated under the laws of Texas and maintained an office in Tyler, Texas. The district court also held that third-party witnesses located in New York, Massachusetts, and Florida would find Texas more convenient thanWashington, and that access to documents only slightly favored transfer because Allvoice’s documents were at its offices in the Eastern District of Texas.

The Federal Circuit disagreed and ordered the case to be transferred to the state of Washington. The Federal Circuit found that Allvoice’s alleged ties to Texas and the Eastern District forum, including incorporating under the laws of Texas just before bringing suit, were clearly in anticipation of litigation and were nothing more than an attempt to manipulate venue. In reaching its conclusion to order transfer to the Western District of Washington, the Federal Circuit again stressed that “courts [should] ensure that the purposes of jurisdictional and venue laws are not frustrated by a party’s attempt at manipulation.” The Federal Circuit again recounted its recent mandamus decisions that help define the boundaries for bringing—and keeping—cases in a particular district, ultimately deciding that the facts in this case favored transfer.

The Microsoft case is another point of reference for companies that find themselves defending patent infringement cases in the Eastern District of Texas. When the plaintiff has no legitimate ties to that district, but attempts to create ties to that district to manipulate a tie to the Texas venue, there is a higher probability that the case can be successfully transferred to a more convenient forum.

A copy of the opinion can be found at:


2. Vistaprint: No Transfer Out of Texas

In December 2010, after ordering the Microsoft case transferred out of Texas in the In re Microsoft Corporation case (discussed above), the Federal Circuit allowed the pendulum to swing back and declined to transfer a case out of the Eastern District of Texas. In the case of In re Vistaprint Limited and Officemax Inc., No. 954 (Dec. 15, 2010), the Federal Circuit clarified the judicial economy standard set out in the earlier case In re Zimmer Holdings, Inc., 609 F.3d 1378 (Fed. Cir. 2010).

The Federal Circuit held that denying a transfer in the Vistaprint case was warranted based in part on “more than negligible” gains in judicial economy. In the Vistaprint case, the district court had substantial experience with the patent based on a prior litigation and had issued a lengthy claim construction opinion; there was also a second co-pending case before the court involving the same patent. Therefore, based on the judicial economy and an individualized consideration of all factors, the Federal Circuit agreed that the case should remain in the Eastern District of Texas.

The Federal Circuit also noted that, oftentimes, a transfer analysis may dictate only one correct outcome, and in those cases (e.g., In re Microsoft), transfer may be appropriate. However, in other cases, the transfer analysis may create a reasonable range of choices. And, “[u]nder such circumstances, it is entirely within the district court’s discretion to conclude that in a given case the . . . factors of public interest or judicial economy can be of ‘paramount consideration,’ and as long as there is plausible support of record for that conclusion we will not second guess such a determination, even if the convenience factors call for a different result” (citation omitted). Such was the case in the case of In re Vistaprint.

However, the Federal Circuit also cautioned that its holding is not intended to give patent owners a free pass to maintain all future litigations involving the same asserted patent(s) in the same venue. Instead, a lower court’s decision to deny transfer will be upheld where there are sufficient gains in judicial economy and when the lower court performs a detailed analysis of the other factors explaining why the case should not be transferred.

A copy of the opinion can be found at:


3. Aliphcom: Transferred from California to Texas

In February 2011, just a few months after denying a transfer in the case of In re Vistaprint (discussed above) based on judicial economy, the Federal Circuit refused to vacate an order transferring a case into the Eastern District of Texas from California based on similar reasoning. See In re Aliphcom, No. 971 (Feb. 9, 2011).

In May 2010, Aliphcom received a letter indicating that some of its products were infringing two patents owned by patentee Wi-LAN. One week later, Aliphcom filed a declaratory judgment action in the Northern District of California seeking declarations of invalidity and noninfringement of the Wi-LAN patents. Wi-LAN then requested a transfer of the declaratory judgment action to the Eastern District of Texas where it was currently litigating two previously filed suits involving the same patents.

The district judge in the Northern District of California agreed with Wi-LAN and ordered the case to be transferred to the Eastern District of Texas, finding that although certain factors counseled in favor of keeping the case in California, “the risk of inconsistent judgments and waste of judicial resources must outweigh the equitable concerns of Aliphcom’s convenience in litigating its claims.” Aliphcom petitioned the Federal Circuit to order the judge in the Northern District of California to vacate the transfer order and keep the case in California.

The Federal Circuit agreed with the California district court and allowed the transfer of the case to the Eastern District of Texas. In the wake of Vistaprint, it was no surprise that the Federal Circuit reiterated its analysis regarding judicial economy as a factor in determining whether a transfer should be granted.  In particular, the Federal Circuit stated that “having the same . . . judge handle this and the co-pending case involving the same patent would be more efficient than requiring another magistrate or trial judge to start from scratch.” Therefore, the Federal Circuit ruled that the California district court did not clearly and indisputably abuse its discretion transferring the declaratory judgment case to Texas.

A copy of the opinion can be found at:


The Federal Circuit Rejects the 25 Percent Rule as Fundamentally Flawed and Reviews the Entire Market Value Rule for Calculation of Patent Infringement Damage

In a decision concerning the so-called “25 percent rule” and “the entire market value rule,” the Federal Circuit in the case of Uniloc USA, Inc. et al. v. Microsoft Corp., Nos. 2010-1035, -1055 (Fed. Cir. Jan. 4, 2011), affirmed the U.S. District Court for the District of Rhode Island’s grant of a new trial on damages on the improper use of the entire market value rule. The Rhode Island District Court allowed Uniloc’s damages expert to proffer testimony on the 25 percent rule, which he did in addition to proffering testimony on the entire market value rule. The jury awarded Uniloc damages of $388 million based on the testimony of Uniloc’s damages expert. On appeal, the Federal Circuit reviewed the propriety of the 25 percent rule, the application of the entire market value rule, and the excessiveness of the jury’s damages award.

Plaintiff Uniloc asserted claims of U.S. Patent No. 5,490,216 (the ’216 patent) against defendant Microsoft Corporation. The ’216 patent relates to a software registration system designed to deter copying of software by allowing the software to run without restrictions only if the system determines that the software installation is legitimate. Microsoft was accused of infringement by way of its Product Activation feature that acts as a gatekeeper to Microsoft’s Word XP, Word 2003, and Windows XP software programs. The feature requires the user to enter a 25-character alphanumeric product key contained within the packaging of Microsoft’s retail products. After entering a valid key, the user is asked to agree to Microsoft’s End User License Agreement, after which the licensor-licensee relationship is initiated.

The district court denied Microsoft’s pre-trial motion in limine seeking to exclude Uniloc’s expert’s trial testimony using the so-called 25 percent rule. In denying Microsoft’s motion in limine, the district court found that the 25 percent rule had been widely accepted in patent infringement cases. The district court judge noted that “the concept of a ‘rule of thumb’ was perplexing in an area of the law where reliability and precision are deemed paramount,” but rejected Microsoft’s request to exclude the 25 percent rule because the rule has been widely accepted. The district court thus considered Uniloc’s expert’s use of the “25 percent rule of thumb” to be reasonable. The district court, however, agreed with Microsoft regarding a second damages issue. Namely, the district court agreed that the Uniloc’s expert’s use of the entire market value rule as a “check” was improper because the allegedly infringing feature of Microsoft’s accused software products was not shown to be the basis of consumer demand for the accused products. The district court, therefore, granted Microsoft’s posttrial motion for a new trial on damages.

On appeal, the Federal Circuit first addressed the 25 percent rule. The Federal Circuit noted that “[t]he 25 percent rule of thumb is a tool that has been used to approximate the reasonable royalty rate that the manufacturer of a patented product would be willing to offer to pay to the patentee during a hypothetical negotiation.” According to the 25 percent rule, the licensee pays “a royalty rate equivalent to 25 percent of its expected profits for the product that incorporates the IP at issue.’” The Federal Circuit went on to emphasize that the rule has “met its share of criticism,” primarily under three categories. First, the 25 percent rule “fails to account for the unique relationship between the patent and the accused product.”  Second, the rule “fails to account for the unique relationship between the parties.” Third, “the rule is essentially arbitrary and does not fit within the model of the hypothetical negotiation within which it is based.”

The Federal Circuit discussed Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 589 (1993), a seminal U.S. Supreme Court case on the issue of using expert testimony, which assigned the responsibility to district courts to ensure that “all expert testimony must pertain to ‘scientific, technical, or other specialized knowledge’” under the Federal Rules of Evidence. As a result, the Federal Circuit rejected the 25 percent rule. Specifically, it held that “the 25 percent rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation” and, furthermore, held that evidence relying on the rule is 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 Federal Circuit, after striking down the 25 percent rule, reviewed Uniloc’s damages expert’s application of the entire market value rule. It reaffirmed that “[t]he entire market value rule allows a patentee to assess damages based on the entire market value of the accused product only where the patented feature creates the ‘basis for customer demand’ or ‘substantially create[s] the value of the component parts.’” Because it was undisputed that the accused Product Activation feature did not create the basis for customer demand, the Federal Circuit affirmed the district court’s ordering of a new trial on damages.

The Federal Circuit found that use of the entire market value rule by Uniloc’s expert as a “check” was improper. For the entire market value rule to apply, “‘the patentee must prove that the patent-related feature is the basis for customer demand.’” During the district court trial, after having heard Uniloc’s damages expert testify about the entire market value of the accused products being $19 billion, the jury was instructed that it could not, however, award damages based on Microsoft’s entire revenue from all the accused products in the case. Nonetheless, “[a]s the district court aptly noted, ‘[t]he $19 billion cat was never put back into the bag.’ Because “the entire market value of the accused products has not been shown to be derived from the patented contribution,” its consideration here by the jury at the district court was in “clear derogation of the entire market value rule.” Therefore, “the district court did not abuse its discretion in granting a conditional new trial on damages for Uniloc’s violation of the entire market value rule.”

A copy of the slip opinion can be found at: http://www.cafc.uscourts.gov/images/stories/opinionsorders/10-1035.pdf.

The Federal Circuit Court of Appeals Clarifies the Pleading Standard for False Patent Marking Claims

On March 15, 2011, the Federal Circuit Court of Appeals granted a petition for a writ of mandamus filed on behalf of BP Lubricants USA Inc. and directed the United States District Court for the Northern District of Illinois to grant a motion to dismiss a complaint pursuant to the False Marking Statute, 35 U.S.C. § 292.

The Federal Circuit decision contains two noteworthy holdings. First, the Court held that Fed. R. Civ. P. 9(b)’s particularity requirement applies to false patent marking claims. The Court explained that Rule 9(b)’s gatekeeping function is necessary to prevent relators from using discovery as a fishing expedition and to assure that only viable § 292 claims reach discovery and adjudication. The Court noted that “[p]ermitting a false marking complaint to proceed without meeting the particularity requirement of Rule 9(b) would sanction discovery and adjudication for claims that do little more than speculate that the defendant engaged in more than negligent action.”

Second, the Court held that a complaint alleging false marking is insufficient when it only asserts conclusory allegations that a defendant is a “sophisticated company” and “knew or should have known” that the patent expired. The Court explained that a false patent marking complaint must provide some objective indication to reasonably infer that the defendant was aware that the patent expired.