Category Archives: Patents

Jury Finds in Favor of Apple and Against Samsung

Posted on August 27, 2012 by | Comments Off on Jury Finds in Favor of Apple and Against Samsung

By:Joe Carnicella, intellectual property attorney at Picadio Sneath Miller & Norton, P.C.

On Friday, August 24, a nine member jury entered a verdict in favor of Apple and awarded almost $1.05 billion in damages.  Apple filed suit against one of its largest competitors, Samsung Electronics, in April 2011, and alleged that Samsung’s Galaxy line of smartphones and tablets infringed seven of Apple’s patents covering the iPhone and iPod products.  In turn, Samsung countersued alleging that Apple infringed Samsung’s patents covering various wireless software components of its products.  After more than a year of highly contentious litigation and following a trial that began at the end of July and lasted the better part of August, the jury deliberated for less than three days before delivering the verdict in favor of Apple.

Prior to trial, Apple received a significant e-discovery victory when the court sanctioned Samsung for its failure to preserve emails after Samsung should have anticipated the lawsuit by Apple.  The court determined that Samsung had a duty to preserve evidence as of August 23, 2010, and while Samsung issued a litigation hold and provided instructions detailing how to save emails using its email system, Samsung failed to disable the auto-delete function of its email system, which automatically deleted all emails every two weeks in Samsung’s Korean offices.  The court ordered that, as part of the sanctions, the jury would be allowed to draw an adverse inference against Samsung and that the jury would be told to presume that relevant evidence was destroyed and that the lost evidence was favorable to Apple.

The court also entered pretrial preliminary injunctions against Samsung barring the sale of the Galaxy Nexus phone and the Galaxy Tab 10.1 in the United States.  Moreover, the court delivered various ruling for and against both parties on various in limine motions.  One ruling against Samsung appeared to be very significant: Samsung took issue with the court’s ruling that, because Samsung failed to disclose in time contentions that Samsung’s designs were in development before the iPhone, Samsung was precluded from using slides containing images of the Samsung designs.  This particular issue surfaced again during the afternoon while opening statements were being made when a press release issued saying that “the excluded evidence would have established beyond doubt that Samsung did not copy the iPhone design” and that “fundamental fairness requires that the jury decide the case based on all the evidence.”  Counsel for Apple raised this issue with the judge claiming that the release was an attempt to influence the jurors.  The court ordered that counsel for Samsung disclose who authorized the release and also required that one of the lead attorneys, John Quinn, file an affidavit about his involvement in the release.  Quinn complied with the court’s order and disclosed that Samsung did not issue the press release but was responding to press inquiries about the issue.  Quinn acknowledged that he authorized the press statement but declared that the purpose was not to influence the jury.  Apple filed a motion for sanctions, which was ultimately denied by the court; however, the judge indicated that the issue may be investigated further following trial.

Apple established at trial its theory that Samsung had ripped off the unique design features of the iPad and iPhone and infringed certain utility patents.  Apple focused on comparisons between Samsung’s phones from 2006 to its newer smartphones from 2010.  Also, Apple relied on internal documents from Samsung comparing Samsung’s products with the iPhone hardware.  Apple called one of its design veterans as its first witness, who described how Apple’s design team discussed most of their work at the kitchen table and how they were constantly questioning one another as designs were suggested and developed until they agreed on a final product.  Apple also called a former employee who designed icons for the original Macintosh computers to opine on the confusion with the icons and layouts on screens of various Samsung phones.  Furthermore, Apple relied on a marketing expert who opined that people don’t associate Samsung touchphones as groundbreaking technology and based such an opinion in part on Samsung internal documents that described the iPhone as a competitive threat.  Moreover, Apple called its patent portfolio director who described the company’s licensing strategy and stated that he could count on one hand the number of instances wherein Apple entered into a license for a company to use its design patents.

On the other hand, Samsung maintained the position that Apple had no right to claim a monopoly on certain design features that were not revolutionary.  Samsung’s theory to demonstrate non-infringement was to get the jury to focus on the specific legal requirements relating to each of Apple’s patents.  Samsung called one its designers who testified that she did not rely on Apple designs to create icons for the Galaxy smartphone lines.  Samsung also went on the offensive by attempting to prove that Apple’s products use certain Samsung features for mobile devices, such as the process for emailing photos and the technology relating to easily finding photos in an album.  Samsung called an expert who testified that the iPhone and iPad violated three of Samsung’s patents.  Moreover, Samsung attempted to demonstrate that Apple’s patents were invalid due to developments in technology that existed before Apple claimed to have invented such technology.

The significance of this trial must be underscored.  As a threshold matter, the trial may serve as a precursor to Apple’s global patent war against Google, which was an “extra” in this litigation because Samsung’s smartphones run on Google’s Android operating system.  As a reminder, Steve Jobs vowed that he is “willing to go thermonuclear war on this.”  Also, this trial served as a gateway that uncovered some of Apple’s secret world.  Apple moved to keep under seal many documents and trial exhibits that contained competitively sensitive information, such as financial data and proprietary market research including customer surveys.  The court granted some of the motions that related to production capacity, source code and licensing agreements; however, the court denied most of the motions regarding financial data and marketing.  The court rationalized the decisions by explaining that “because Apple updates its product lines relatively frequently, it is not obvious that historical profit, profit margin, cost, or unit sales data for past products would provide competitors with an advantage over future products.”  The court determined that there was a strong interest in making the data public due to the total amount of damages on the line.

What’s next?  The jury’s verdict was favorable to Apple in every way but one: the jury decided that the Samsung Galaxy Tab 10.1 did not infringe Apple’s patent covering design elements on the iPad.  This decision by the jury was contrary to a decision made by the court prior to trial.  As mentioned above, the court entered a preliminary injunction barring Samsung from selling the Galaxy Tab 10.1 in the United States.  Following the verdict, Samsung filed a motion requesting that the court dissolve the preliminary injunction order on the grounds that there is no proper basis for maintaining the injunction based on the jury’s verdict.  However, because the jury also decided that the Galaxy Tab 10.1 infringed some of Apple’s software patents, the issue may be more complicated.  Moreover, the court is within its rights to overrule the jury’s decision and issue a ruling that the Galaxy Tab 10.1 does, in fact, infringe Apple’s design patent.  Also, the jury found that Samsung willfully infringed the patents, and thus, the court must decide how much to increase the damages award, which could be up to three times.  Finally, and perhaps most importantly, the question remains whether the court will issue a permanent injunction against Samsung, and if so, what would be the extent of the injunction, i.e. would an injunction cover only those products identified by Apple in this lawsuit or any/all current and future similar products.

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Patent or Trade Secret — Which One to Choose?

Posted on August 24, 2012 by | 1 comment

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

There was an interesting article on CNBC yesterday that highlights a popular misconception people have regarding how to protect their ideas and innovations. While people often think of using patents to protect their ideas, the law provides a number of different mechanisms (such as trade secrets) that can often be far more useful and valuable than patents. The article highlights how some of the most valuable intellectual property in the world, such as the Dr. Pepper formula, KFC’s “Secret Recipe of 11 Herbs and Spices,” and the formula for WD-40, is not patented, but is instead protected as a trade secret.

Both patents and trade secrets provide important protections for an individual’s or company’s innovations, but they protect them in very different ways. Patents generally entitle an inventor to the exclusive right to make, use, and sell the invention described in the claims of the patent for a 20-year period from the date the patent application is filed. As part of the quid pro quo for obtaining this government-sanctioned exclusive right, the inventor must describe how to make or use his or her invention in sufficient detail that a person in that field would be able to make or use the invention without significant difficulties. Once that 20-year period expires, anyone is free to use that invention.

Trade secrets, on the other hand, potentially can last forever and the law will prevent others from improperly taking or using the invention, as long as the individual or company takes sufficient steps to keep the invention secret. Thus, a former employee who happens to know the secret will not be allowed to make the product in competition with the inventor, or a competing company cannot use industrial espionage to steal the secret. The law does not prevent another from using the secret if the person independently and lawfully discovers the same invention on his or her own, though. It only protects the inventor from others who have improperly discovered or used the secret.

From these brief descriptions, it is clear that patents better protect some kinds of inventions, while keeping the invention a trade secret may better protect others. For instance, it may make more sense to consider patenting the invention when the innovative aspect of an invention is readily seen simply by looking at a product (such as with a paper clip or a pop-top soda can).  The law will protect the inventor from anyone else making or selling the same invention for 20 years, even if that other inventor independently came up with the same idea. Trade secret protection is likely of little to no value in this case, because once the invention is sold, everyone knows what the invention actually is.

On the other hand, inventions such as the Dr. Pepper formula are not easy to determine, even when you have a can of Dr. Pepper in your hands. The precise ingredients and the process by which they are blended are not apparent. This kind of invention lends itself to being kept as a trade secret because the invention is not easily reversed engineered. If Dr. Pepper had chosen the patent route instead, it would only have had an exclusive right to make and sell the soda only for 20 years, after which everyone could make exactly the same product. By protecting it as a trade secret, it potentially can keep its invention a secret forever.

One of the keys with trade secrets is that the inventor must take reasonable and active steps to keep the invention secret. As the article mentions, many of these companies restrict knowledge of the complete formulas or processes to only a handful of individuals and take steps make sure that the products are manufactured in such a way that no one can determine what the recipes are. If an inventor does not take steps to keep his or her invention secret, the law will not do it for him or her.

Obviously, both patent and trade secret law are far more complex than what is discussed here. However, the basic principles are useful to understand so that the right questions can be asked and the right strategies considered when deciding how to protect your secrets and inventions.

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Full Scope Enablement — Magsil Corp. v. Hitachi Global Storage Techs., Inc.

Posted on August 15, 2012 by | Comments Off on Full Scope Enablement — Magsil Corp. v. Hitachi Global Storage Techs., Inc.

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

An often-overlooked aspect of patent drafting is the requirement under 35 U.S.C. § 112, ¶ 1 that the entire scope of the claims must be enabled by the disclosures in the specification. As can be seen from the Federal Circuit’s recent decision in Magsil Corp. v. Hitachi Global Storage Technologies, Inc., Case No. 2011-1221, the failure to fully enable a claim can have grave consequences.

The case involved read-write sensors for computer hard disk drive storage systems. The inventors claimed a method of manufacturing a tri-layer junction and the junction itself. Information is stored by varying the magnetization of an electrode on the hard disk. In one orientation, the resistance is higher than the other, which can be measured to determine whether the electrode is in a “0” or “1” state. At issue was the phrase “causes a change in the resistance by at least 10% at room temperature.” Past inventions were unable to achieve this large of a change, peaking at only 2.7%.

The problem for the patentee was the open-ended language of “at least 10%,” which the Court noted could include changes from 10% to infinity. The specification only described how to achieve changes between 10.0–11.8%, and was silent on how to achieve changes larger than that. The district court granted summary judgment for the defendant, finding that the claims were not enabled and therefore invalid, and the Federal Circuit affirmed.

The Federal Circuit reviewed the history of the full scope enablement requirement, which serves two purposes—(1) to ensure that the patentee adequately discloses the claimed invention and (2) to prevent claims that are broader than what is disclosed. The Court noted that “a patentee chooses broad claim language at the peril of losing any claim that cannot be enabled across its full scope of coverage.” Therefore, in order to meet the enablement requirement, “[t]he specification must contain sufficient disclosure to enable an ordinary skilled artisan to make and use the entire scope of the claimed invention at the time of filing” without undue experimentation.

In this case, the Court found that the claim was invalid because the specification did not enable the full scope of the claims. There was nothing in the specification that described how to achieve changes of the magnitude encompassed by the open-ended claim. In fact, the inventor testified that even he did not know how to create changes greater than 20%. Because “[t]he ‘922 patent specification only enables an ordinarily skilled artisan to achieve a small subset of the claimed range,” the Federal Circuit affirmed the district court’s summary judgment of invalidity.

This case provides an important practice pointer when drafting claims. While one is generally interested in drafting broad claims, it is important that the specification fully supports the range of the claims; otherwise, the entire claim might be invalid. This further suggests that drafters consider using dependent claims to narrow ranges or using so-called “picture” claims, which are more tightly focused on any embodiments known to the inventors at the time of the application.

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In re Walter F. Beineke — The Mighty Oak That Couldn’t Be Patented

Posted on August 14, 2012 by | Comments Off on In re Walter F. Beineke — The Mighty Oak That Couldn’t Be Patented

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

While most people are familiar with patents for inventions, many do not realize that an individual can obtain a patent on new kinds of plants. In In re Walter F. Beineke, the Federal Circuit had to address what kinds of plants (in this case, trees) are eligible for patent protection. In a unanimous decision authored by Circuit Judge Dyk, the Court concluded that the applicant (Walter Beineke) was not entitled to a patent for white oak trees he discovered.

Beineke, a Professor Emeritus of Forestry and Natural Resources at Purdue University, discovered two large, hundred-year-old white oak trees in another’s front yard that appeared to display superior genetic traits than those of other white oaks (excellent timber quality and a strong central stem tendency). Beineke planted acorns from each of the trees and confirmed the superior traits of the trees. After years of studying these trees, he applied for plant patents on both trees.

The United States Patent and Trademark Office rejected his applications, finding that the trees were found in an uncultivated state, which was affirmed by the Board of Patent Appeals and Interferences, finding that there was no evidence that the trees had been planted by a person. Beineke appealed, and the Federal Circuit affirmed the rejections, although for a slightly different reason.

The case centered around the proper interpretation of 35 U.S.C. § 161, which allows the Patent Office to issue plant patents to anyone who:

invents or discovers and asexually reproduces any distinct and new variety of plant, including cultivated sports, mutants, hybrids, and newly found seedlings, other than a tuber propagated plant or a plant found in an uncultivated state . . . .

The question was what level of human involvement is necessary to obtain a plant patent. Beineke argued that no human involvement is necessary, while the Patent Office argued that humans must play some role in the creation of the plant.

The Federal Circuit traced the history of the Patent Act, starting with the 1930 Act, which allowed plant patents.  The Court noted that the statute and the courts applying it recognized that plant patents could not be granted for simply discovering a plant. There had to be some “exercise of the inventive faculty.”

In short, the provisions of the original 1930 Act, incorporated in the present plant patent statute, provided patent protection to only those plants (e.g., sports, mutants, and hybrids) that were created as a result of plant breeding or other agricultural and horticultural efforts and that were created by the inventor, that is, the one applying for the patent.

The Court then considered what effect, if any, the 1954 amendments had on the Plant Patent Act. One of the primary purposes of the amendments was to overrule a prior court decision and allow plant patents for newly found seedlings that were the result of human activity.

Taking all of this together, the Court found that Beineke was not entitled to a plant patent on either white oak tree. The Court concluded that Beineke discovered the white oaks by chance and that he could not demonstrate that the trees were the result of his (or anyone else’s) creative efforts. Given that the trees were over 100 years old when Beineke found them, they were also not “newly found seedlings” within the scope of the 1954 amendments.

Having made these determinations, the Court declined to address what is meant by “found in an uncultivated state” for purposes of § 161, leaving that question for another day and another case.

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PATENT TROLLS: $29 Billion Cost!

Posted on August 10, 2012 by | Comments Off on PATENT TROLLS: $29 Billion Cost!

by: Henry M. Sneath, a shareholder at Picadio Sneath Miller & Norton, P.C.

Our friends at Thompson and Knight have provided the latest on the cost to businesses and society of Patent Troll litigation. The costs remain staggering.  We share their article with you and commend you to its reading. Thanks to author R. David Donoghue. See link below: http://www.retailpatentlitigation.com/2012/08/07/trolls-cost-society-29-billion-with-a-b-in-2011/#page=1

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Western Pennsylvania Patent Lawsuit Filings Increase in 2012

Posted on August 7, 2012 by | Comments Off on Western Pennsylvania Patent Lawsuit Filings Increase in 2012

by: Henry M. Sneath, a shareholder at Picadio Sneath Miller & Norton, P.C.

The USDC for the Western District of Pennsylvania enacted local patent rules in 2005. The court has also been designated as one of a number of courts in the country that are part of a Pilot Program where patent filings will be monitored and wherein participating courts will establish certain practices for the administration of Patent cases. While patent filings have been rather flat in the Pa. Western District in the last few years, the number has skyrocketed in 2012. There were 11 Patent cases filed in 2011, but this year, through July, there have already been 28 filings, or more properly, 11 actual filings and 17 transfers of cases from the Eastern District of Texas, or which relate to those transferred cases.

These latter 17 cases have related to the same or similar patents held by a company called Maxim Integrated Products, which is suing numerous big name companies, and which is being sued in declaratory judgment actions by many other big name companies. Many of their suits were filed, not surprisingly in Texas Eastern, but were transferred to Pa. Western.

Declaratory Judgment actions followed and have been filed here by other companies whom Maxim allegedly threatened with suit. The patent (s) at issue relate to the transfer of “cash” between secure devices (eg: mobile to mobile). The Summary of the Invention in this ‘510 patent is set forth as:

“The present invention is an apparatus, system and method for communicating a cash equivalent electronically to and from a portable module. The portable module can be used as a cash equivalent when buying products and services in the market place. The present invention comprises a portable module that can communicate to a secure module via a microprocessor based device. The portable module can be carried by a consumer, filled with electronic money at an add-money station, and be debited by a merchant when a product or service is purchased by the consumer. As a result of a purchase, the merchant’s cash drawer will indicate an increase in cash value.”

We will follow these cases and report more in the future.

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Western District of Pennsylvania Adds Two New Designated Patent Judges

Posted on June 8, 2012 by | Comments Off on Western District of Pennsylvania Adds Two New Designated Patent Judges

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

As reported earlier, the United States District Court for the Western District of Pennsylvania was chosen to be one of 14 District Courts nationwide to participate in a 10-year Patent Pilot Program to study the effects of providing specialized patent judges on patent litigation. On October 12, 2011, the Court issued an order setting forth the procedures it will use in implementing this program. Among other things, the Court identified four judges who are designated as the official Designated Patent Judges for the Court:

Under the Court’s guidelines, patent cases are still randomly assigned to all Judges in the District, regardless of whether they are Designated Patent Judges. However, a non-Designated Patent Judge has the option of declining the case. If he or she does so, the case will be randomly reassigned to one of the Designated Patent Judges.

Since the Court’s implementing order, it has added two new Designated Patent Judges:

The Court has created a special Patent Pilot Program page on its website, which has a variety of information about the program, including the Court’s Local Patent Rules.

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Rogers v. Tristar Products–Federal Circuit Dismisses Pending Patent False Marking Appeal

Posted on June 7, 2012 by | 1 comment

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

When President Obama signed the Leahy-Smith America Invents Act, H.R. 1249, 112th Cong. (1st Sess. 2011), the patent false marking claims that had become so popular were essentially eliminated. Whereas before anyone could bring such a claim, regardless of whether they had actually suffered any injury, now only those who have “suffered a competitive injury” as a result of a violation of the marking statute have standing to sue. (See 35 U.S.C. § 292). The America Invents Act not only prohibits persons who have not suffered a competitive injury from suing in the future, it also divests the standing of plaintiffs in pending false marking cases from continuing to pursue those claims.

In Rogers v. Tristar Products, Inc., 2011-1494, -1495, the Federal Circuit had to decide if that divestment included cases on appeal, as well as cases current pending in district courts. After considering the clear language in the newly amended 35 U.S.C. § 292—“The amendments made by this subsection shall apply to all cases, without exception, that are pending on, or commenced on or after, the date of the enactment of this Act”—the Federal Circuit determined that all cases must be dismissed, regardless of where they were pending or what procedural posture they may be in, unless the plaintiff could demonstrate that it had suffered a competitive injury.

The Federal Circuit rejected plaintiff’s assertion that he had a property right in maintaining such a claim or that the retroactive elimination of his claim violated the Due Process Clause. The Court found that Congress had a legitimate justification for eliminating these types of claims and rationally made the requirements retroactive.

The America Invents Act has effectively eliminated the nascent cottage industry of individuals suing companies for leaving expired patent numbers on its products. Companies no longer need to fear that they will be sued in such circumstances by individuals who likely have never used the products in question. Despite this, companies still need to be concerned about monitoring their products to make sure that they are appropriately marked. In the high stakes of patent litigation, defendants are still likely to look at whether they can bring false marking counterclaims if they are sued. As a competitor, it will be far easier (although by no means certain) to establish a competitive injury.

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U.S. Supreme Court Decides Kappos v. Hyatt

Posted on April 19, 2012 by | Comments Off on U.S. Supreme Court Decides Kappos v. Hyatt

By: Joseph R. Carnicella, intellectual property and commercial litigation attorney at Picadio Sneath Miller & Norton, P.C.

In Kappos v. Hyatt, 566 U.S. ___ (2012), decided on April 18, 2012, a unanimous Supreme Court affirmed a Federal Circuit decision that (a) a patent applicant faces no limitations on their ability to introduce new evidence in a Section 145 (35 U.S.C. § 145) proceeding beyond those already in place in the Federal Rules of Evidence and the Federal Rules of Civil Procedure, (b) the district court must take de novo factual findings of both new evidence presented on a disputed question of fact and the administrative record before the PTO, and (c) the district court may consider what weight to afford any new evidence taking into account whether the applicant had an opportunity to present the new evidence before the PTO.

In this case, Gilbert Hyatt (Respondent) filed a patent application that included 117 claims.  The PTO’s patent examiner denied each of the claims for lack of an adequate written description pursuant to 35 U.S.C. § 112.  Hyatt appealed the decision to the Board of Patent Appeals and Inferences (Board), and after receiving approval of 38 claims, Hyatt filed a Section 145 action in federal district court against the Director of the PTO (Petitioner).  In support of his position that the patent application included an adequate written description, Hyatt included a written declaration with his submission to the district court setting forth the portions of the patent specification that, in his opinion, supported the claims that were deemed unpatentable by the Board.  The district court refused to consider the declaration on the grounds that applicants are precluded from presenting new issues, at least in the absence of some reason of justice put forward for failure to present the issue to the PTO.  The district court then applied a deferential substantial evidence standard under the Administrative Procedure Act (APA) in reviewing only the PTO’s administrative record and subsequently granted summary judgment to the Director.

Hyatt appealed to the Federal Circuit, and a divided panel affirmed the district court’s decision that the APA imposed restrictions on the admission of new evidence in a Section 145 proceeding and that the district court’s review is not wholly de novo.  The Federal Circuit granted rehearing en banc and vacated the grant of summary judgment.  The Supreme Court granted certiorari following the ruling from the en banc court.  The Director argued before the Supreme Court that a district court should admit new evidence in a Section 145 action only if the proponent of the evidence had no reasonable opportunity to present the evidence to the PTO in the first instance.  Also, the Director argued that, when new evidence is introduced, the district court should overturn the PTO’s factual findings only if the new evidence clearly establishes that the agency committed error in its findings.

The Supreme Court began its analysis of the Director’s arguments by first reviewing the text of Section 145: “An applicant dissatisfied with the decision of the Board of Patent Appeals and Interferences in an appeal under section 134(a) may, unless appeal has been taken to the United States Court of Appeals for the Federal Circuit, have remedy by civil action against the Director . . . . The court may adjudge that such applicant is entitled to receive a patent for his invention, as specified in any of his claims involved in the decision of the Board, as the facts in the case may appear, and such adjudication shall authorize the Director to issue such patent on compliance with the requirements of law.”  The Supreme Court concluded that the plain text neither imposes unique evidentiary limits in district court proceedings nor establishes a heightened standard of review for factual findings by the PTO.

The Supreme Court next considered the Director’s argument that the statute should be read in light of traditional principles of administrative law under the APA.  The Director argued that (a) the district court should defer to the PTO’s factual findings and (b) in line with the traditional rule that a party first must exhaust administrative remedies, the district court should consider new evidence only if the party did not have an opportunity to present the evidence to the PTO.  The Supreme Court disagreed with the Director’s positions.  First, the Director conceded that Section 145 proceedings are not limited in the same manner as judicial review of an agency decision under the APA, which is typically limited to the administrative record.  The Supreme Court noted that the PTO cannot account for evidence that was not presented, and as a result, the district court must make its own findings de novo.  Also, the Supreme Court determined that administrative exhaustion does not apply to Section 145 because, while administrative exhaustion avoids premature interruption of the administrative process, the PTO’s process is complete by the time a Section 145 proceeding occurs.

The Supreme Court then analyzed the evidentiary and procedural rules in effect at the time when Congress enacted Section 145 in 1952.  The Supreme Court traced the history of Section 145 back to the 1836 Act, which established the Patent Office, and noted that the specific language in Section 145 originated in the 1870 Act.  According to the Supreme Court, in 1878, the relevant provision of the 1870 Act was codified by Congress as Revised Statute § 4915 (R.S. 4915), which served as the immediate predecessor to Section 145.  The parties agreed that R.S. 4915 and judicial interpretations of that statute provided the foundation for the understanding of Section 145.  The Supreme Court analyzed the two primary cases describing the nature of R.S. 4915, and concluded that Congress intended that applicants would be free to introduce new evidence in Section 145 proceedings subject to the rules applicable to all civil actions and that, where new evidence is presented to the district court, a de novo finding would be necessary.

Finally, in agreeing with the Federal Circuit that the district court may decide what weight to afford an applicant’s newly admitted evidence, the Supreme Court noted that the proper means for the district court to accord respect to decisions of the PTO would be through the court’s broad discretion over the weight to be given to such new evidence in Section 145 proceedings.

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Federal Circuit Finds License Negotiations Discoverable

Posted on April 10, 2012 by | Comments Off on Federal Circuit Finds License Negotiations Discoverable

By: Joseph R. Carnicella, IP Associate with Picadio Sneath Miller & Norton, P.C.

In In Re MSTG, Inc., Misc. Doc. No. 996, 2012 U.S. App. LEXIS 7092 (Fed. Cir. April 9, 2012), the Federal Circuit found that license negotiations between a patent holder and its licensees relating to reasonable royalties and damages are not protected by a settlement negotiation privilege.

MSTG sued various cell phone service providers claiming infringement of two patents.  MSTG eventually settled with all but one of the defendants (AT&T), wherein most defendants entered into settlement agreements and were granted licenses under the patents-in-suit and other patents owned by MSTG.  MSTG also licensed the patents-in-suit to a technology consortium around the same time period.

As part of the litigation, the amount of a reasonable royalty was a primary issue to the extent AT&T was found to infringe the patents-in-suit.  AT&T sought discovery into the negotiations of the settlement agreements and argued that such information was relevant in calculating a reasonable royalty.  MSTG’s damages expert offered an opinion relating to a reasonable royalty based on comparable licenses, industry survey results, and other published rates for similar technology.  The expert reviewed but discounted the pertinent license agreements on the grounds that the royalty rates were “litigation related compromises” and not comparable to a hypothetical negotiation between MSTG and AT&T.  AT&T then moved to compel the license agreements reviewed by the expert as well as the underlying negotiations.  The magistrate judge determined that the negotiation documents could disclose reasons why the parties reached the royalty agreements, which could provide guidance on whether such licenses could be considered in a calculation of a reasonable royalty between MSTG and AT&T.  The district court denied MSTG’s objections and agreed with the magistrate judge.

MSTG petitioned the Federal Circuit for a writ of mandamus, and the district court’s discovery order was temporarily stayed pending review.  MSTG asserted that, under Rule 501 of the Federal Rules of Evidence, the Federal Circuit should create a new privilege in patent cases that would prevent discovery of litigation settlement negotiations related to reasonable royalties and damages.  The Federal Circuit analyzed the relevant rules of procedure, rules of evidence and case law and concluded that settlement negotiations related to reasonable royalties and damage calculations are not protected by a settlement negotiation privilege.  Also, MSTG asserted that the district court abused its discretion by ordering the production of negotiation documents underlying the settlement agreements.  The Federal Circuit agreed with AT&T that, because the expert offered opinions that went beyond the four corners of the settlement agreements, MSTG could not deny discovery of that same information to AT&T.  The Federal Circuit did not address whether such settlement negotiation materials would be admissible in front of a jury.

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