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Federal Circuit Addresses Fee Shifting Statute–Kilopass Tech. v. Sidense Corp.

Posted on January 7, 2014 | Comments Off on Federal Circuit Addresses Fee Shifting Statute–Kilopass Tech. v. Sidense Corp.

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C. ()

Federal CircuitWhile Congress continues to consider various bills that would make it easier for prevailing parties in patent cases to collect their attorneys’ fees from non-prevailing parties, the Federal Circuit is not sitting by quietly. In Kilopass Technology, Inc. v. Sidense Corp. (Case No. 2013-1193), the Court vacated and remanded a District Court’s decision not to award attorneys’ fees to a prevailing defendant. In an opinion written by Judge O’Malley, the Federal Circuit reviewed the Court’s jurisprudence on fee shifting and clarified the elements that must be met for a defendant that prevails.

Background

This case was a more typical competitor-on-competitor patent infringement lawsuit, rather than the “troll” variety that has been in the news of late. Kilopass and Sidense are competitors in the embedded non-volatile memory market. Kilopass became concerned that Sidense may infringe some of Kilopass’s patents after reviewing a Sidense patent application, so Kilopass hired a law firm to conduct an infringement analysis. Based on an initial review, counsel believed that there was a sufficient basis to send a friendly letter to Sidense, asking if it wanted a license and for an explanation of why it did not infringe. Sidense responded by pointing out differences between its design and the claims of the patent and declined a license.

After receiving Sidense’s response, counsel noted that his infringement analysis assumed that Sidense was making a product according to the design in its patent application, which is not always the case. He noted that if Sidense was making the product in a different way, it did not infringe (at least literally). He recommended that Kilopass try to find out how Sidense’s memory cells were made in order to better assess its potential infringement.

A Kilopass employee obtained further information that showed that Sidense was not making its memory cells the same way that it described in its patent application. With this information, counsel determined that Sidense was likely not infringing and that Kilopass would have a tough case.

Kilopass hired another law firm to conduct another analysis. The second firm preliminarily determined that Kilopass appeared to have a valid claim of infringement via equivalence, but that it needed to conduct a more detailed analysis to be sure. Counsel started this analysis, but was instructed by Kilopass to stop all work.

A team of engineers from Kilopass then concluded that Sidense infringed under the doctrine of equivalence after reviewing the patent and Sidense’s products. Kilopass filed suit approximately two years later.

During the litigation, the District Court found out that Kilopass was making inconsistent arguments regarding the proper claim construction before the Court and before the USPTO BPAI during a concurrent inter partes re-examination. The Court then chastised Kilopass for its gamesmanship. The Court ultimately granted summary judgment of non-infringement to Sidense, which the Federal Circuit summarily affirmed.

Sidense sought its fees, which the District Court ultimately denied because Kilopass performed substantial pre-filing investigations and obtained opinions from two different law firms and its own engineers that it had a non-baseless claim of infringement.

Federal Circuit’s Holding

The Federal Circuit ultimately vacated the District Court’s determination that an award of attorneys’ fees was not warranted and remanded for a further determination. In doing so, the Court clarified the current state of the law with respect to whether a court should award attorneys’ fees to a prevailing defendant in a patent infringement lawsuit.

The determination of whether to award fees is a two-step process, which must be shown by clear and convincing evidence. First, the prevailing defendant must show that the patentee’s claims of infringement were objectively baseless. Second, the defendant must show that the patentee brought the claims in subjective bad faith.

In assessing the subjective prong, a defendant does not have to show that the patentee knew its claims were baseless. A showing that it should have known based on the totality of the circumstances, which can include how objectively baseless the claims were, is sufficient. The Court noted that direct proof of subjective bad faith is often very difficult to come by, so indirect proof can be sufficient.

The Court reiterated that a showing of bad faith is required for an award of fees, although, had the panel been working on a clean slate and not bound by prior precedent, it may have found otherwise. Bad faith must be considered by viewing the totality of the circumstances. The Court also noted that in most cases the objective prong will likely be determinative of this issue, and the subjective bad faith requirement “may prove to have little effect.”

Interestingly, the Court considered whether clear and convincing evidence should be required to prove these elements. It ultimately concluded that it must, but did so based on the fact that it had to follow the precedent set by earlier panels.

Finally, the Court rejected Sidense’s proposal that fee shifting should be appropriate whether a patentee files a lawsuit having little likelihood of success. Unlike Sidense’s other arguments, the Federal Circuit did not seem inclined to expand liability in this fashion.

Conclusion

The Federal Circuit set forth a clearer statement of the law regarding awards of attorneys’ fees to prevailing defendants in patent infringement lawsuits. This was not a patent troll case, so the overtones and political issues associated with that topic were not present. The decision seemed to signal that the panel would have considered significant changes to the law but for the prior precedent that bound it. This may signal that this case is ripe for an en banc review. We shall have to wait and see.

The other take away is that the Federal Circuit is not going to tolerate patentees bringing weak cases, especially when counsel expresses in writing that infringement is unlikely. Patentees need to be cautious about bringing such suits, especially where it appears that literal infringement is not present.

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Survey of Proposed Patent Lawsuit Reform Bills in Congress (Part 4)

Posted on December 13, 2013 | Comments Off on Survey of Proposed Patent Lawsuit Reform Bills in Congress (Part 4)

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C. ()

Another patent reform bill is quickly working its way through Congress as we speak. The Innovation Act (HR 3309) passed the House by a vote of 325–91 and is pending in the Senate, which has said that it will fast track passage of it. Many of the provisions are similar to those found in the other proposed pieces of legislation that we discussed earlier (see parts 1, 2, and 3), and address some of the concerns I raised in these prior discussions. One of the more significant provisions of the Innovation Act is the fee-shifting provision, which proposes to amend 35 U.S.C. § 285.

US Capitol BuildingUnder current law, patent lawsuits follow the American system in which each side pays its own legal fees. The current § 285 modifies the American rule somewhat, providing that in exceptional cases the court may award attorney fees to the prevailing party. The Innovation Act scraps the American rule altogether and flips current § 285 by providing that the court must award reasonable attorney fees and expenses to the prevailing  in patent cases, “unless the court finds that the position of the non prevailing party or parties was substantially justified or that special circumstances make an award unjust.” (Proposed § 285(a)).

As an initial matter, this provision is supposed to deter parties from filing frivolous lawsuits, but it is not clear that it will accomplish this purpose. To be a prevailing party requires a judgment by the court, likely either on a motion for summary judgment or a trial verdict. Neither of these happen towards the beginning of litigation, so a defendant will have to still incur significant costs to get to the point at which it has a chance to recover its fees. Many defendants will likely not want to incur those costs, especially if the plaintiff appears to lack significant assets or has a plausible basis for its claims (even with the interest party expansion of proposed § 285(b)).

This provision may, in fact, create an incentive for patent trolls, especially in cases where they have a strong patent but the damages are not significant. By defaulting to a loser pays system, there is a greater likelihood that patent trolls will file additional lawsuits and defendants in these kinds of cases will be required to pay the troll’s litigation costs, even when a troll would have been unlikely to prove willful infringement.

Finally, there are real questions about what it means to be prevailing party and what the “substantially justified” standard means. For instance, what happens if a plaintiff prevails on one claim, but the jury find non-infringement on another? Are both parties prevailing parties? Or, if the plaintiff prevails on one patent, but the defendant invalidates the other asserted patent? What happens if a target of a demand letter files a declaratory judgment action and forces a patentee into a lawsuit that it never intended to file?

Also, when, exactly, does a non-prevailing party have to be substantially justified in its position? At that time it first asserts the position? At the end of the litigation? At any time? These are not trivial concerns. A defendant at the initial stages of a lawsuit often will assert non-infringement and invalidity defenses and counterclaims before having much time to analyze the claims or having the benefit of the  court’s claim constructions. Those positions may be only in their initial stages with modest support, but later blossom into very strong positions. Similarly, what appear to be strong positions can turn into weak ones once the court issues its claim construction. In which of these situations are the positions substantially justified?

Courts will undoubtedly struggle with interpreting these standards and deciding who, exactly, “deserves” to pay and who does not. Moreover, while these new rules are clearly targeted towards fighting patent trolls, they apply equally in all patent cases, including the traditional competitor vs. competitor lawsuits. By changing the rules, it will create additional pressures that are more likely to be borne by defendants, who have no control over whether they are sued, than by plaintiffs, who can have significant control over when they sue and which patents/claims they sue on.

The Innovation Act looks likely to pass the Senate and be signed into law by the President. It will be interesting to see if it accomplishes what it purports to set out to do.

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Defendant Files RICO Complaint Against Patent Troll

Posted on October 9, 2013 | 1 comment

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C. ()

A colleague brought to my attention an interesting development in a patent “troll” case in the Southern District of New York that may foreshadow a new approach for companies to defend themselves in these kinds of lawsuits. It is a rather extreme approach, and it will be interesting to see how this case progresses.

MoneyLumen View Technology LLC filed a patent infringement lawsuit against FindTheBest.com, Inc. (Case No. 1:13-cv-03599-DLC). While this case was still pending, FindTheBest filed a separate lawsuit against Lumen View, its principals, and other related entities (Case No. 1:13-cv-06521-DLC), bringing claims under RICO and for extortion, abuse of process, civil conspiracy, and unfair business practices.

Background

According to the two complaints, FindTheBest operates a web site that provides consumers with data-driven comparisons of a wide variety of products and subjects, such as phones, cars, and ski resorts. Lumen View contends that FindTheBest infringes U.S. Patent No. 8,069,073, which relates to a “System and Method for Facilitating Bilateral and Multilateral Decision-Making.”

Lumen View was formed on February 23, 2012 and obtained the patent in suit seven days later. It allegedly conducts no other business aside from filing patent lawsuits and licensing in patents, and has filed more than 20 patent infringement lawsuits relating to the’073 patent in the last 18 months.

On May 30, 2013 (the day after the complaint was filed), FindTheBest claims that it received a letter from Lumen View enclosing the complaint and demanding that FindTheBest pay to settle the lawsuit. Lumen View apparently initially demanded that FindTheBest pay $85,000 for a licensing fee, but dropped that demand to $55,000 the day before FindTheBest’s answer to the complaint was due. FindTheBest rejected Lumen View’s settlement demands and continued with the lawsuit. The parties have submitted a list of claim terms to be construed, and FindTheBest has moved for judgment on the pleadings, arguing that the patent is invalid under 35 U.S.C. § 101.

On September 16, 2013, FindTheBest filed an entirely separate lawsuit in the same court against Lumen View, its principals, and other related entities, bringing claims for violating RICO, extortion, abuse of process, civil conspiracy, and unfair business practices. FindTheBest contends that Lumen View engaged in a criminal enterprise by failing to conduct proper due diligence before filing its lawsuits and knowingly pursuing frivolous cases in order to extort settlement money from its targets. Defendants in this second case have not yet answered the complaint.

What This Case Means

This is an interesting and aggressive approach to fighting back against what FindTheBest apparently believes is a frivolous and improper lawsuit. It is curious that it is bringing this second lawsuit at this time—before the first case is even close to being resolved. One wonders how the Court will respond to this second action. Will it allow it to proceed? Will it stay or dismiss the case pending the resolution of the first lawsuit?

Civil RICO cases are generally disfavored by the courts and notoriously hard to prosecute. In general, such a claim would be extremely difficult for a defendant to bring in a standard patent infringement lawsuit because RICO requires a pattern of racketeering activity and multiple victims. In this case, however, because Lumen View allegedly filed multiple extortionate lawsuits against multiple “victims,” FindTheBest may be able to overcome these pleading hurdles.

Regardless, as long as the second lawsuit exists, it creates immense pressure on the patent holder and the persons and companies associated with it and likely completely changes the settlement dynamic. For one thing, Lumen View likely cannot take the approach that Loadsys did against Kapersky Labs and unilaterally drop the lawsuit if it thinks it will not prevail. Such an action would feed right into FindTheBest’s theory that the lawsuit was a sham and increase the chances that FindTheBest could prevail in its lawsuit.

It will be interesting to follow this case and see how it progresses. If nothing else, it gives all parties something more to think about in lawsuits of this type.

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What to Do About Patent Trolls?

Posted on October 7, 2013 | Comments Off on What to Do About Patent Trolls?

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C. ()

The problem with patent assertion entities (PAEs), also called patent trolls, continues to be a hot-button issue among practitioners, companies, and the government. Recently, Gene Quinn from IPWatchdog wrote about one proposed solution he and others see to this problem—encouraging companies to fully litigate these lawsuits and not to settle quickly, thereby raising the costs of this kind of litigation to discourage the bringing of weak lawsuits. But, is this really a practical solution to the troll problem for everyone?

TrollQuinn believes that the issues faced by patent troll targets are similar to those faced by the auto insurance industry in the 1980s. Back then, the auto insurance companies frequently chose to settle cases for less than the litigation costs, regardless of the merits. This settlement strategy encouraged litigants to bring even more lawsuits, often of a questionable nature. It wasn’t until the industry decided to fight all of the cases that the more frivolous lawsuits disappeared. As Quinn states, “[t]he lesson was clear: if you don’t fight, and if you make yourself an easy target, people will sue you on both good and bad cases.”

In March 2011, Lodsys approached 55 companies demanding compensation for their alleged infringement of Lodsys patents. 51 of the companies settled out of court, and 3 others settled a few weeks after Lodsys brought suit. Only Kapersky Labs decided to vigorously defend itself. After over two years of litigation and just days before trial, Lodsys unilaterally gave up and dropped its lawsuit against Kapersky Labs. Because Kapersky Labs adopted this approach, Quinn expects that it will no longer be considered an “easy target” and that it will not be sued as often as before.

My feeling is that Quinn is correct that settling weak patent infringement lawsuits only encourages and perpetuates the troll system. The problem that I have with his solution is that it is not a universal solution and is really only effective for a limited number of defendants.

While some trolls are looking for a large payday, many are willing to settle for relatively small amounts in comparison to the litigation costs—in the thousands or tens of thousands range (see, e.g., here and here). Patent litigation is expensive, with pre-trial costs ranging from $350,000 to $1,000,000 for modest size cases and total costs ranging from $700,000 to $2,000,000. Thus, a company is faced with a decision of whether to pay a few thousand dollars now to end the litigation and receive a fully-paid up license or spends hundreds of thousands or millions to hopefully defeat the troll in the courts (which is no guarantee, as any litigator will tell you).

The law potentially allows a prevailing defendant to collect its fees and expenses, but there is no certainty that a defendant can meet the high standard required to get such an award or that it will be able to collect such an award from the troll. Many of these trolls are shell companies with little to no real assets. Even if the company is able to get and collect its fees and expenses, that still would not make it whole. The company will likely have wasted 2+ years in the litigation process, with all the distractions and stresses that it creates.

In addition, for many companies the litigation costs represent a significant portion of its annual profits. It may have to lay off workers, forgo development, or otherwise restrict its operations during the litigation simply to pay its legal bills. That is a lot to ask of a company in order to fulfill some greater societal goal of discouraging patent trolls, especially if it is not a frequent target of patent trolls itself.

Trolls are obviously counting on companies to engage in exactly this type of analysis, which is why they offer certainty at a relative low cost. It encourages companies to pay quickly and avoid both the long-term legal costs and the potential of a large judgment against them. As a purely business decision, it is hard to ignore, even if it is extortionate.

So, what is the solution? Larger companies that are frequent troll targets should seriously consider the approach that Kapersky Labs used (and Quinn encourages) of aggressively litigating these kinds of cases. (Of course, these companies always need to evaluate the merits of the case before deciding whether to litigate.) By raising the costs of doing business and denying the trolls an easy score, trolls will likely begin to avoid suing that company, which is a win for both the company and the legal system.

It is more difficult for smaller companies to adopt this approach, however. These companies likely will need help from the Courts, Congress, and the President to create disincentives to discourage trolls from bringing frivolous lawsuits in the first place. In the end, as long as there is money to be made, the trolls will exist and will find ways around whatever rules are in place.

Some of the approaches being discussed in Congress (see here, here, and here) are a step towards solving this problem, but they are likely not the final answer. Given that the large patent litigation costs are the primary driver that forces companies to settle, mechanisms that reduce these costs or delay them until a patent holder can establish that it has brought a legitimate lawsuit may be part of the answer.

In addition, in the rush to rid the world of trolls, Congress needs to be careful that they don’t tip the balances in traditional, “legitimate” patent infringement lawsuits so as to make it unreasonably difficult for patent owners to enforce their patents against actual infringers. The bottom line is that there do not appear to be any easy answers to this problem.

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Fed Circuit Excuses Late Payment of Maintenance Fee

Posted on September 26, 2013 | Comments Off on Fed Circuit Excuses Late Payment of Maintenance Fee

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C. ()

The Federal Circuit issued an interesting decision this week in Network Signatures, Inc. v. State Farm Mut. Ins. Co., No. 2012-1492, that reversed a District Court’s finding of inequitable conduct based on a patentee’s late payment of a maintenance fee. The Court found that even though the patentee intentionally did not pay the maintenance fee, such a failure could be excused when the reason for not paying was based on an erroneous assumption that no one wanted to license the patent. Judge Newman wrote the opinion for the Court, joined by Judge Wallach. Judge Clevenger dissented.

Federal Circuit

Background

A scientist at the Naval Research Labs (NRL) obtained a patent relating to internet security. There did not appear to be any commercial interest in the patent, so NRL permitted the patent to lapse by not paying the 7.5-year maintenance fee. Unbeknownst to NRL, a company (Network Signatures) was interested in licensing the patent. The company attempted to contact NRL via phone and e-mail before the maintenance fee was due, but was unable to do so because NRL’s systems were not functioning properly. Network Signatures was finally able to reach NRL two weeks after the maintenance fee was due. At this point, NRL’s lawyer filed a petition with the PTO for delayed payment, asserting that the failure to pay was unintentional. The PTO granted the request, and NRL ultimately licensed the patent to Network Signatures.

Network Signatures sued State Farm for patent infringement. After discovery, State Farm moved for summary judgment on inequitable conduct, arguing that the failure to pay the maintenance fee was not unintentional. The District Court granted summary judgment, and Network Signatures appealed.

The Federal Circuit’s Decision

The Federal Circuit reversed. In doing so, it looked at the nature of the proceedings before the PTO. NRL’s lawyer submitted a standard form relating to late payments and checked a box indicating that the failure to pay was unintentional. The Court stated that “[w]e do not agree that this action constituted material misrepresentation with an intent to deceive.” The Court found no irregularities with NRL’s conduct after learning of Network Signatures’ desire to license the patent and that it was not improper to use the PTO’s forms (which did not require an explanation).

The dissent disagreed, and found that NRL intentionally allowed the patent to lapse. This was not the kind of unintentional delay that should be excused. While the dissent agreed with the District Court that State Farm had proven the first element of an inequitable conduct defense (material misrepresentation), the dissent found that the second element (specific intent to deceive) was a factual question that precluded summary judgment.

Conclusion

This is a rather odd decision. NRL clearly intended to allow its patent to lapse, but would not have done so but for a problem in communication. But, is this a “mistake of fact” that would excuse its abandonment? The majority failed to address the boundaries of the “mistake of fact” defense proffered by the patentee, and, instead, seems to have relied on the bare-bones nature of the PTO form used. This decision does not seem to provide much clarity as to what constitutes an “unintentional” abandonment of a patent.

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GAO Issues Report on Patent “Troll” Litigation

Posted on August 26, 2013 | Comments Off on GAO Issues Report on Patent “Troll” Litigation

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C. ()

GAO SealLast Thursday, the U.S. Government Accountability Office (GAO) issued a report on patent infringement litigation and recommended steps that may be taken to improve both litigation and the patents themselves. The 61-page report, entitled “INTELLECTUAL PROPERTY: Assessing Factors That Affect Patent Infringement Litigation Could Help Improve Patent Quality,” makes a number of recommendations, as well as providing a background in this area, including statistics summarizing recent trends in patent litigation.

We’ll be taking a look at this report in more detail and providing some commentary on it in the near future as a part of our ongoing analysis of the issues presented by NPE/PAE/patent troll litigation.

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Fed Circuit Upholds Verdict and Sanctions Against NPE

Posted on August 20, 2013 | Comments Off on Fed Circuit Upholds Verdict and Sanctions Against NPE

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C. ()

Federal CircuitThe Federal Circuit issued an opinion in Taurus IP, LLC v. DaimlerChrysler Corp. (No. 2008-1462), upholding a verdict in favor of a technology user in the continuing patent wars between non-practicing entities (NPEs) and companies. Judge Schall delivered the opinion of the Court, joined by Judges Prost and Reyna.

The case involved two separate actions—one for patent infringement and one for a breach of warranty involving a prior settlement agreement between the parties. In the patent action, the Federal Circuit affirmed the district court’s determination that Taurus’s patent was invalid, that defendants did not infringe, and that the case was exceptional because plaintiff failed to conduct proper due diligence and filed a frivolous lawsuit. In the breach of warranty action, the Court affirmed the finding that the court had jurisdiction over the parties, that plaintiff and related third parties (Orion IP, LLC and Erich Spangenberg) breached the warranty provisions, and that two of the third parties engaged in witness tampering. The Court affirmed-in-part and reversed-in-part the damage awards relating to defendants’ attorneys’ fees.

Background

The case has a rather long and convoluted history, starting with a different lawsuit back in 2004.

Orion (an NPE owned by Spangenberg) sued DaimlerChrysler and Mercedes in 2004. Prior to filing suit, it acquired the rights to a patent (the ‘658 Patent) that would be at issue in the later lawsuit. To resolve the 2004 case (which involved different patents), the parties entered into a settlement agreement in 2006. Under that agreement, Orion warranted that had not assigned any patent rights relating to the 2004 litigation. However, five days after filing the 2004 lawsuit, Orion assigned the ‘658 Patent to another of Spangenberg’s companies and did not disclose that fact.

In 2007, Taurus (another NPE) acquired the rights to the ‘658 Patent from one of the many Spangenberg companies. Taurus then filed suit against DaimlerChrysler and Mercedes 10 days later. This is the case that was on appeal before the Federal Circuit.

The ‘658 Patent involved a “a computer system for managing product knowledge related to products offered for sale by a selling entity.” Taurus alleged that defendants infringed the patent through their internal and external web sites that allowed customers to select various options on different car models and then see if any dealers had that configuration available for sale in the area.

The District Court’s Rulings

The district court issued a claim construction that was unfavorable to Taurus. The court then granted summary judgment in favor of defendants, finding that defendants did not infringe and that the asserted claims of the patent were invalid in light of prior art that pre-dated the earliest conception date that Taurus could prove. In addition, the court found that the case was an exceptional case that warranted an award of defendants’ attorneys’ fees.

The court found that Taurus failed to conduct a proper due diligence before filing suit, that there was no reasonable basis to believe that defendants infringed, and that Taurus needless prolonged the litigation in bad faith. The court then awarded over $1,600,000 in attorneys’ fees.

With respect to the breach of warranty claims, the court found that it had jurisdiction over all of the parties and denied Taurus and the third-party defendants’ attempts to dismiss the claims. A jury then found for DaimlerChrysler and Mercedes. On post-trial motions, the court found damages caused by the breach in the amount of almost $2,500,000 for the costs incurred to defend the patent infringement lawsuit and $ 1,300,000 in attorneys’ fees relating to the breach of warranty claims.

In addition, the court found that Erich Spangenberg and an attorney working with him attempted to tamper with a witness. The attorney used to represent DaimlerChrysler in prosecuting its patents, but left to work for one of Spangenberg’s companies during the course of the litigation. Spangenberg contacted the attorney and told him that he believed that one of DaimlerChrysler’s witnesses was going to commit perjury and that the attorney should take steps to deal with it. The attorney then called and sent the witness a letter “reminding” the witness of certain “facts.”  The attorney never indicated that he worked for Spangenberg.

When this contact came to light, the court conducted a closed hearing to address what happened and what should be done. The court ultimately concluded that (1) the communications were designed to intimidate the witness and influence his testimony, (2) that the attorney should have been screened from the case due to his prior employment with DaimlerChrysler, (3) that the “facts” were not supported by the record. As a sanction, the court prevented Spangenberg and his companies from evoking testimony refuting one of the elements to the breach of warranty claim.

The Federal Circuit Mostly Affirms

On appeal, the Federal Circuit affirmed all of the patent infringement-related issues in full. It upheld the claim construction, the non-infringement ruling, the invalidity ruling, and the award of attorneys’ fees.

With respect to the breach of warranty issues, the Federal Circuit largely affirmed, including the witness tampering sanctions, but did reverse on the issue of the damages for a lack of evidence presented at trial.

Conclusion

This was a fairly convoluted case before the Federal Circuit. While the lengthy opinion makes for an interesting read, there are some high-level take aways. First, Chief Judge Rader has repeatedly indicated that district courts should exercise their inherent and statutory powers to sanction NPEs and other litigants that bring frivolous patent infringement lawsuits. The district court apparently took that to heart and the Federal Circuit backed her up. Second, the failure to conduct appropriate pre-filing due diligence proved very costly to plaintiff. Finally, parties need to be very careful before communicating (or inducing another to communicate) with an opposing witness prior to testifying, as the sanctions can be devastating to a case.

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Preliminary Ruling Okaying Use of Copyrighted Articles During Patent Prosecution as Fair Use

Posted on August 15, 2013 | Comments Off on Preliminary Ruling Okaying Use of Copyrighted Articles During Patent Prosecution as Fair Use

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C. ()

Magistrate Judge Jeffrey J. Keyes from the U.S. District Court for the District of Minnesota issued an important report and recommendation affirming the ability of patent attorneys to use copyrighted articles during patent prosecution (e.g., to submit them to the USPTO to fulfill disclosure requirements) as fair use.

BACKGROUND

In American Institute of Physics, et al. v. Schwegman Lundberg & Woessner, P.A.  (No. 12-cv-00528), various publishers sued a law firm that had copied their copyrighted scientific articles in order to assess whether the articles were prior art and, if they were, sent copies to the USPTO to fulfill its obligation to disclose prior art. The publishers originally argued that any use by the law firm of these articles without payment constituted copyright infringement. However, they dropped their claims as to the firm’s (1) making copies to be sent to the USPTO, (2) sending copies to the USPTO, and (3) retaining one copy for its files. They continued their infringement claims as to the downloading of the articles, making other copies that existed in the firm’s files, and distributing the copies to its clients or others in the firm. The law firm argued that none of these actions infringed because of the fair use exception.

THE COURT’S DECISION

In assessing the applicability of the fair use defense, a court must consider (1) the purpose and character of the accused infringer’s use, (2) the nature of the copyrighted work, (3) the amount of used, and (4) the effect of the copying on the relevant market.

The Court determined that the nature and purpose of the firm’s use was different from that of the publishers. The publishers publish the works for the betterment of science and to allow other scientists to test and validate the authors’ findings. In contrast, the firm used the articles to satisfy a legal requirement of disclosure to assist the USPTO in determining whether an invention was new and novel. The Court further found that the intended audience for the two parties was different and did not overlap. The publishers’ audience was scientists, students, libraries, etc., whereas the firm’s audience was the USPTO and lawyers in the firm.

The Court also considered the nature of the articles to slightly favor the law firm. Because the articles were primarily factual and informational in nature, they fell a bit further from the creative types of expression more strongly protected by copyright law.

The Court looked at the amount of use and also concluded that, despite the copying of the entire article, this factor also favored the law firm. In order to satisfy its obligation of disclosure, the firm had to use the entire article. Thus, its entire use was consistent with its allowed purpose.

Finally, the Court looked to whether there were any other factors that might favor either party. It concluded that the law firm’s use was consistent with the overriding Constitutional basis for both the patent and copyright laws, which is to promote the progress of the science and useful arts. Such copying ultimately furthered this objective and the public good by assisting the USPTO in weeding out improper patents.

Ultimately, in weighing all of the factors, the Court concluded that the law firm’s use of the copyrighted articles was fair use and not copyright infringement.

 

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End of Experimental Use Exception? Hamilton Beach v. Sunbeam

Posted on August 14, 2013 | Comments Off on End of Experimental Use Exception? Hamilton Beach v. Sunbeam

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C. ()

Hamilton BeachThe Federal Circuit issued an interesting decision today in Hamilton Beach Brands, Inc. v. Sunbeam Products, Inc. (No. 2012-1581). The opinion, written by Judge O’Malley and joined by Judge Bryson, invalidated a patent based on the patentee’s contractual agreement with its own supplier to purchase a product that utilized the patented invention more than one year before the date of the patent application.  The dissent, written by Judge Reyna, argued that this decision is inconsistent with the requirement that an offer for sale must by a commercial offer and that it will eviscerate the experimental-use exception.

Background

The patentee, Hamilton Beach, developed an improved slow cooker with clips to hold the lid of the cooker to the body of the cooker. Hamilton Beach’s original design had the clips mounted to the body. Sunbeam designed a competing version of the product with clips mounted to the lid. In response, Hamilton Beach filed a continuation patent application that specifically incorporated Sunbeam’s new design. This application eventually matured into the patent involved in the lawsuit.

In defense, Sunbeam argued that it did not infringe and that the patent was invalid as anticipated because Hamilton Beach introduced new matter into its continuation application and therefore could not take advantage of the earlier filing date. Sunbeam also argued that the patent was invalid due to an offer for sale more than one year before the earliest priority date.

More than one year before the original patent application was filed, Hamilton Beach issued a purchase order to one of its foreign suppliers, asking it to manufacture nearly 2,000 slow cookers based on Hamilton Beach’s specifications and designs. The supplier agreed to fulfill the order once it obtained a release from Hamilton Beach. The supplier’s confirmation occurred more than one year before Hamilton Beach filed its patent application. Hamilton Beach issued the release to its supplier within the one-year period before it filed its application, though.

The District Court ultimately agreed with Sunbeam on all three grounds, finding that Sunbeam did not infringe and that the patent was invalid.

The Federal Circuit’s Decision

A patent can be invalidated under 35 U.S.C. § 102(b)’s on sale bar provision “when two conditions are satisfied before the critical date: (1) the claimed invention must be the subject of a commercial offer for sale; and (2) the invention must be ready for patenting.” There is an exception to the on sale bar where the use is experimental in nature, which negates the commercial requirement of § 102(b).

The Federal Circuit only addressed Sunbeam’s on-sale bar argument, finding that the offer from Hamilton Beach’s supplier to manufacturer the slow cooker once it received the release was an offer for sale under § 102(b). Because this offer occurred more than one year before Hamilton Beach filed its patent application and Hamilton Beach clearly had specifications and drawings of its invention, the patent was invalid as anticipated.

It reaching its decision, the Court noted that there need not be a binding contract for purposes of § 102(b)—only an offer is required. Moreover, the Court found that there is no “supplier exception” to the on-sale bar.

The key dispute between the majority and dissent was whether Hamilton Beach’s purchase order should have been analyzed under the experimental use exception.

The majority stated that it was expressly not considering the experimental use exception because (1) Hamilton Beach never raised this argument and (2) the order of almost 2,000 slow cookers strongly suggested that the use was not experimental. The majority went out of its way to specifically state that this opinion has no bearing on that exception:

“Experimental use” is simply not at issue. There is, thus, no threat that this decision will have any impact on that defense; it certainly will not “eviscerate” that defense as the dissent fears.

The dissent disagreed, finding that Hamilton Beach had raised this issue and that there was sufficient evidence to suggest that the 2,000 units were being ordered in order to work out a defect in the design. The dissent further expressed concern that this ruling would “eviscerate” the experimental use exception and create havoc for companies that have third parties manufacture their goods.

Conclusion

It is somewhat difficult to predict how this case will be used in the future, but there are certainly some points to take away from it. First, companies need to be aware that contractual negotiations and offers with their own suppliers potentially can be used against them to invalidate their patents. This highlights the need to file provisional applications and keep track of the relevant dates so as not run into this issue. Second, where a use is experimental in nature, it is helpful to document its experimental nature for use later in litigation. Third, the majority fairly clearly states that this decision does not destroy or even implicate the experimental use exception, so that exception should still be available if properly raised at the trial court. Finally, this case highlights the importance of preserving this argument explicitly and clearly.

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Congress Considering Stronger Trade Secret Laws

Posted on July 30, 2013 | Comments Off on Congress Considering Stronger Trade Secret Laws

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C. ()

shutterstock_65907358Congress is not limiting its intellectual property legislation to just patents. Senators Whitehorse and Graham announced yesterday that they are proposing new legislation to aid US companies in protecting their trade secrets via expanded criminal penalties. While just in a “discussion draft” stage, the proposed legislation  includes provisions that “cover[] foreign-sponsored trade secret theft, that victim companies can weigh in on how to protect trade secrets during criminal prosecutions, and to ensure that foreign hackers that victimize American companies can be held accountable.”

Among its provisions, the proposed legislation would:

  • expand coverage to prohibit government sponsored hacking
  • allow owners of the trade secrets more input in cases
  • clarify that the statute covers trade secret theft that is facilitated by means located in the US
  • clarify that “foreign instrumentalities” include companies that are substantially subsidized by foreign government entities
  • expand trade secrets to include negotiating strategies and positions
  • clarify that liability exists for any knowing conveyance of stolen trade secrets to foreign governments
  • make trade secret theft a RICO predicate act

The text of the discussion draft can be found here, along with a summary of the key provisions.

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