Tag Archives: patent litigation

Supreme Court Reverses Federal Circuit Interpretation of Patent Venue: TC Heartland Holding Overturned

Posted by:  Henry M. Sneath, Esq. – Chair of the Intellectual Property Practice Group at Pittsburgh, Pa. law firm Picadio Sneath Miller & Norton, P.C. (PSMN® and PSMNLaw®). Mr. Sneath is also an Adjunct Professor of Law at the Duquesne University School of Law teaching Trade Secret Law, Trademark Law and the Law of Unfair Competition. He may be contacted at hsneath@psmn.com or 412-288-4013. See Website www.psmn.com .

The US Supreme Court overturned the Federal Circuit’s decision in TC Heartland v.  Kraft Foods and its longstanding interpretation of the patent venue statute and has reaffirmed that a corporation is a resident of the state in which it is incorporated. It had decided that question a long time ago, but the Federal Circuit and statutory changes to the general (non-patent) venue statutes had undermined the original decision of the Supreme Court in 1957 in Fourco Glass.  The court provided this analysis in TC Heartland:

“The patent venue statute,28 U. S. C. §1400(b), provides that ‘[a]ny civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.’ In Fourco Glass Co. v. Transmirra Products Corp., 353 U. S. 222, 226 (1957), this Court concluded that for purposes of §1400(b) a domestic corporation “resides” only in its State of incorporation.” 
In overturning the Fed. Cir. decision, the Court rejected the argument that 28 U.S.C. §1400 (patent venue statute) incorporates the broader definition of corporate “residence” contained in the general venue statute 28 U.S.C. 1391 as has been allowed by the Federal Circuit for years. This changes the longstanding practice of the Federal Circuit to interpret “residence” as being any state in which a defendant corporation simply conducts business. This interpretation has allowed unfettered forum shopping which generally results in shopping and filing in the Eastern District of Texas.

“We conclude that the amendments to §1391 did not modify the meaning of §1400(b) as interpreted by Fourco. We therefore hold that a domestic corporation “resides” only in its State of incorporation for purposes of the patent venue statute.” Justice Thomas authored the court’s opinion.

The big question is whether this will indeed reduce or eliminate the monopoly held by Texas on patent cases and whether it will simply shift it to Delaware where many corporations are incorporated. The court may take additional action or so too may the US Congress to prevent that simple shifting of venues from Texas to Delaware.

See the Opinion in TC Heartland v. Kraft Foods here: https://www.supremecourt.gov/opinions/16pdf/16-341_8n59.pdf

Henry Sneath 412-288-4013 and hsneath@psmn.com

VENUE: Will Texas Lose its Dominance as a Patent Venue? Fed. Circuit Tackles Venue in the “Heartland” Case

 

FEDERAL CIRCUIT HEARS ORAL ARGUMENT IN “HEARTLAND” CASE ON MAJOR VENUE ISSUE

Posted by Henry M. Sneath, Esq. – Chair of the Intellectual Property Group at Picadio Sneath Miller & Norton, P.C. (PSMN® and PSMNLaw®) in Pittsburgh, Pa. He may be contacted at hsneath@psmn.com or 412-288-4013. Website www.psmn.com or www.psmn.law

Federal CircuitYesterday the Federal Circuit heard oral argument on the mandamus petition filed by TC Heartland in an underlying case lodged in the District Court of Delaware ( The underlying case is Kraft Foods Group Brands LLC v. TC Heartland LLC, case number 1:14-cv-00028, in the U.S. District Court for the District of Delaware). The outcome could either keep the status quo where Texas is the venue of choice for an inordinately large number of patent infringement filings, or force courts to adopt a different standard for evaluating proper venue. Texas, Delaware and the Northern District of California receive the majority of patent case filings, but Texas gets over 40% of all filings alone. Heartland, as sued by Kraft Foods, is headquartered in Indiana and believes that the case should be lodged in their home jurisdiction and not where they have little or no business contact in Delaware – beyond sales of product. On a challenge to venue, the District Court used the currently applied standard finding “venue is appropriate for a defendant in a patent infringement case where personal jurisdiction exists.” Heartland argues that the Federal Courts Jurisdiction and Venue Clarification Act of 2011 effectively repealed the Federal Circuit’s 1990 ruling in VE Holding v. Johnson Gas Appliance that patent suits can be brought anywhere a defendant makes sales. In other words, that personal jurisdiction and venue are essentially the same. Heartland, in its mandamus petition ( https://www.eff.org/files/2015/10/28/in_re_tc_heartland.pdf ) has asked the Federal Circuit to reevaluate the VE Holding case along with certain Congressional venue legislation and the overall venue issue.

Here are a couple of resources to assist you in following this case. The great blog at Patently-O has written on Heartland: http://patentlyo.com/patent/2015/10/defendant-jurisdictional-infringement.html

See also a fascinating study of what would happen to patent case filings if the Federal Circuit changed the venue standard: From Patently-O: Guest Post: What Would Happen to Patent Cases if They Couldn’t all be Filed in Texas? March 11, 2016 PatentJasonRantanen by Colleen Chien, Santa Clara University Law School and Michael Risch, Villanova University Charles Widger School of Law

Sneath Headshot  Henry M. Sneath, Esq.

 

                        

 

No Good Faith Invalidity Defense to Induced Infringement, Supreme Court Holds

by: Robert Wagner, intellectual property attorney at the Pittsburgh law firm of Picadio Sneath Miller & Norton, P.C. ()

SupremeCourtImage_1The Supreme Court issued another patent law opinion today; this time focusing on whether a good-faith belief that a patent is invalid can be a defense to a claim of induced infringement. In Commil USA, LLC v. Cisco Systems, Inc. (No. 13-896), the Court concluded in a 6-2 decision that the answer is no, reversing the Federal Circuit. Justice Kennedy delivered the opinion for the Court, and Justices Scalia and Roberts dissented. (Justice Breyer took no part in the decision.)

Background

Commil holds a patent relating to short-range wireless networks (Patent No. 6,430,395). It sued Cisco under direct and in6430395 Imageduced infringement theories, contending that Cisco directly infringed by making and using network equipment and induced others to infringe by selling them the network equipment that they used in an infringing manner. Eventually, after significant motion practice, a reexamination at the Patent Office, and multiple trials, Commil prevail on both theories. The Federal Circuit reversed on two grounds. First, it found an error in the jury instructions regarding induced infringement that would have allowed a finding in Commil’s favor based on negligence, instead of actual knowledge. And, second, it found that the district court improperly barred Cisco from arguing as a defense that it had a good-faith belief that the patent was invalid.

The first point was not at issue before the Supreme Court. Only the second issue, whether a good-faith (but ultimately incorrect) belief that a patent is invalid is a defense to a claim of induced infringement. The Supreme Court found that it is not a defense.

Holding

The Court first looked at the induced infringement statute, 35 U.S.C. § 271(b), which provides that “[w]hoever actively induces infringement of a patent
shall be liable as an infringer.” Citing its previous decision in Global-Tech Appliances, Inc. v. SEB S. A., 563 U. S. ___ (2011), the Court stated that to be liable for induced infringement, a patentee must show that the defendant knew both of the patent and that the induced acts constituted infringement of the patent.

Before considering the good-faith defense, the Court took time to specifically reject Commil and the government’s position that induced infringement only requires knowledge of the patent. Under Global-Tech, induced infringement requires both the knowledge of the patent and the knowledge that the induced acts infringe the patent. Therefore, a good-faith belief that there was not infringement can be a defense to induced infringement.

Having dispensed with that argument, the Court next turned to the heart of the matter–whether a good-faith belief that the patent is invalid can be a defense. The Court started with the language of the statute, which only is concerned with infringement, and it noted that patent infringement and invalidity are separate issues. It further considered the effect that allowing such a defense might have on patent owners. Under the Patent Act, all issued patents are presumed valid and to allow such a defense would undermine that presumption and its effect. The Court noted that an invalidity defense is not a defense to infringement; it is a defense to liability (although it did note the truism that an invalid patent cannot be infringed). Finally, the Court was concerned that allowing such a defense would only increase the burdens of litigation.

Taken together, it concluded that knowledge or intent regarding invalidity was not relevant to whether someone induced another to infringe.

Dissent

Justice Scalia, joined by Chief Justice Roberts, dissented. First, they agreed with the majority’s opinion relating to the Global-Tech decision and that induced infringement requires proof that the defendant knew of the patent and knew that the induced acts infringed the patent. They disagreed over the central issue in the case and would have found that a good-faith belief that the patent was invalid is a defense to a claim of induced infringement.

The dissent rejected the majority’s analysis based primarily on the truism that only valid patents can be infringed. If a defendant has a good-faith belief that the patent is invalid, then it would have a good-faith belief that the acts were not causing infringement of a valid patent.

Supreme Court Relaxes Standards for Awarding Attorneys’ Fees in Patent Cases

by: Robert Wagner, patent attorney at the Pittsburgh law firm of Picadio Sneath Miller & Norton, P.C. ()

Law and MoneyAs we noted earlier, the United States Supreme Court has taken a renewed interest in intellectual property and patent cases as of late. In Octane Fitness, LLC v. Icon Health & Fitness, Inc., No. 12-1184, the Supreme Court reversed the Federal Circuit’s long-standing standard for determining whether to award attorneys’ fees to the prevailing party in a patent infringement action. Now, prevailing parties need only show by a preponderance of the evidence that the case was “simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” And, this decision lies in the sound discretion of the trial court.

In Octane Fitness, ICON sued Octane Fitness for infringement of U.S. Patent No. 6,019,710. The district court granted summary judgment in favor of Octane Fitness, but declined to award attorneys’ fees under 35 U.S.C. § 285, finding that the infringement claims were not frivolous, objectively baseless, or brought in bad faith. Octane Fitness appealed, arguing that the Federal Circuit’s standard for awarding fees under § 285 was too restrictive, but the Federal Circuit disagreed. The Supreme Court granted certiorari to clarify the standard.

In a unanimous decision written by Justice Sotomayor, the Supreme Court looked to the statute, which reads in its entirety:

The court in exceptional cases may award reasonable attorney fees to the prevailing party.

Finding that the Patent Act provides no definition or guidance beyond this statement, the Court looked to the common understanding of the term “exceptional” and to when the provision was enacted and the standards that it was meant to codify.

“Exceptional,” the Court found, was meant to encompass things that are out of the ordinary, unusual, or special. The Court further concluded that Congress intended that courts be given discretion to determine when something was exceptional.

Putting these together, the Court held that courts have the discretion to award attorneys’ fees when a case “stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”

The Court rejected the Federal Circuit’s more rigid approach of limiting fee awards only when there has been litigation misconduct or if the party’s position was brought in bad faith and was objectively baseless.  Moreover, the Court found no basis to require the prevailing party to prove its entitlement to fees by clear and convincing evidence.

This decision may have substantial consequences going forward in patent cases, for both plaintiffs and defendants. Because the Court has emphasized that this decision is left to the discretion of the trial court, and the standard is much more flexible, one would expect to see more courts awarding fees. In theory, this will act as a deterrent for bringing frivolous patent claims and may reduce some of the more objectionable patent troll cases. But, it may also put more pressure on defendants with weaker defenses to settle, rather than to litigate at all costs. Only time will tell to see what effects come from this decision.

USPTO Posts Questionable Advice for People Who Receive Demand Letters

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

Last week, the US Patent and Trademark Office expanded its website to include a section to help individuals and companies to respond when receiving demand letters from patent holders. As one of our colleagues, Gene Quinn, over at IPWatchdog.com notes, this resource (albeit in “Beta” form) is fairly one-sided and offers some problematic advice to those who receive demand letters.USPTO

Much of the advice on the USPTO’s website is fairly generic, but the overall tenor of the advice seems to ignore that legitimate patent owners with legitimate and valid patents often send these demand letters to stop individuals and companies from infringing their patents. Indeed, that is one of the fundamental rights that comes with owning a patent—the ability to stop others from using your invention.

Instead, the fundamental assumption on the USPTO’s website seems to be that only patent trolls send demand letters. For instance, the USPTO suggests that one response is to simply ignore a demand letter because some patent owners send these demand letters to mislead or intimidate the recipients into paying for licenses that they do not need. While the USPTO notes that this approach carries some risk, that advice is buried at the end. Oddly, the USPTO never suggests that one option after receiving a demand letter is to simply stop infringing the patent.

The USPTO also downplays the importance of consulting with an attorney to help understand the risks and to respond to the patent owner in an appropriate manner. Patent law is not a simple subject, and most individuals simply do not have the expertise or knowledge to determine whether they are infringing, whether the patent is valid and enforceable, and what the risks may actually be.

In my years of practice, I have noticed that many individuals do not understand what the scope of a patent is unless they have significant prior experience with patents. They tend to look at the description of the invention in the specification or the drawings, rather than the claims, when trying to assess their exposure. As patent practitioners know, it is the claims that truly matter (although the specification is important to understanding those claims), and those claims are often far broader then the particular embodiments disclosed in the specification. In addition, claims are not written in a format that is simple to understand, or there are statements made during the prosecution of the patent that are important to understanding their scope, which compounds the problem. Thus, there is a very real risk that individuals will drastically underestimate the risk that they infringe unless they receive competent legal advice.

While hiring an attorney may be an expensive proposition, the consequences of not doing so may be far greater. A typical patent infringement lawsuit can easily cost more than $500,000 to defend, even where the amount at issue is small (and can cost tens of millions of dollars when significant amounts are at issue). And, once a lawsuit begins, it can be very hard for a defendant to unilaterally stop it. If an individual is truly infringing, an attorney can help the client understand the risks and suggest ways of resolving the matter before litigation begins, which potentially can save an individual hundreds of thousands of dollars. Simply ignoring a demand letter can be the last thing an accused infringer should do unless there is a very good reason for doing so because ignoring the demand letter starts to lay the groundwork for a finding of willful infringement, which potentially entitles the patent owner to triple damages and an award of its attorneys’ fees and costs.

The problem of extortionate patent trolls is very real, and I have represented numerous companies that have been the targets of these kinds of trolls. It is extremely frustrating to explain to a client the financial costs and distractions that come with defending a meritless lawsuit brought by patent troll and the fact that there often is no simple way to make the lawsuit disappear without paying some amount of money to the troll. That being said, I’ve also represented legitimate companies with patents on innovations they developed that help give them a competitive edge in the marketplace. They have spent significant time and resources in developing these innovations and bringing them to market and understandably want to protect those investments. The USPTO’s blanket advice to individuals and companies that might receive a demand letter is not particularly helpful and understates the real risks and costs that are at issue. It is somewhat disturbing that an office that is charged with issuing valid patents and supporting innovation would put out such incomplete and unbalanced advice. Hopefully, the USPTO will present more balanced and useful advice when this website moves out of its “beta” stage.

Significant Interest in Alice Corp. v. CLS Bank Int’l Case at Supreme Court

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

SupremeCourtImage_1The Supreme Court granted certiorari in Alice Corp. Pty. Ltd. v. CLS Bank International, (No. 13-298), to address the boundaries of what constitutes patent eligible subject matter under 35 U.S.C. § 101 and, more specifically, whether and to what extent software is patent eligible. We’ve been following this case since it was at the Federal Circuit (see our prior post here) and noted the chaos that emerged from the Federal Circuit’s en banc decision that could not decide on the proper standards for software patent eligibility.

Since Alice Corp. filed its petition for a writ of certiorari, 34 amicus briefs have been filed, indicating the importance of this case to the patent community. (To read the briefs, click here). The briefs have been circulated to the justices, and oral argument is scheduled for March 31, 2014.

As numerous commentator’s have pointed out (see, e.g., here), software has been patent-eligible subject matter for almost 50 years and accounts for a significant number of granted patents. A decision by the Supreme Court that software is not patent eligible would have huge repercussions throughout the patent and software worlds. We will be monitoring the case and will report on the oral argument, once it occurs.

Prosecution History Estoppel Applies to Design Patents

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

WindshieldThe Federal Circuit issued an interesting opinion today in Pacific Coast Marine Windshields Ltd. v. Malibu Boats, LLC (Case No. 2013-1199) and authored by Judge Dyk, holding for the first time that prosecution history estoppel applies to design patents and that a patentee can surrender subject matter during prosecution through its actions.

Background

The owner and CEO of Pacific Coast filed a design patent application in which he submitted drawings showing five “patentably distinct groups of designs” and claimed an “ornamental design of a marine windshield with a frame, a tapered corner post with vent holes and without said vent holes, and with a hatch andwithout said hatch, as shown and described.” The examiner issued a restriction requirement and required the applicant to elect a single group (and file additional applications for the remaining groups, if desired).

In response, the applicant chose the first designated group and amended the claim to remove the vent hole and hatch language: “the ornamental design of a marine windshield with a frame, and a pair of tapered corner posts.” He also cancelled figures 7-12, leaving just the embodiment with four circular holes on the corner post and a hatch on the front of the windshield. The remaining figures (1-6) showed alternated views of the four-hole embodiment. The amended application ultimately issued as a design patent.

Pacific Coast filed suit against Malibu Boats for making and selling windshields with three trapezoidal holes on the corner posts (shown above). Malibu Boats moved for summary judgment of non-infringement, arguing that Pacific Coast surrendered the non-four-hole embodiments on the grounds of prosecution history estoppel. The District Court agreed, and entered summary judgment in favor of Malibu Boats. Pacific Coast appealed.

The Federal Circuit Reverses and Remands

The Court first noted that while prosecution history estoppel is more often raised in the context of utility patents, the doctrine nonetheless applies to design patents. Surprisingly, this was an issue of first impression for the Court (although recognized in treatises and by district courts previously). The Court did note that the context is somewhat different, however.

For utility patents, infringement can occur either literally or under the doctrine of equivalents. Design patents are different and do not require literal identity to impose liability. Instead, liability arises if someone applies the patented design or any colorable imitation of it (in other words, sufficient similarity is sufficient). Thus, literal infringement and equivalents infringement are intertwined from the start.

The Court determined that doctrine of prosecution history estoppel should apply to design patent prosecution in order to preserve the public notice function of the process. A patentee should not be able to recapture subject matter that it abandoned during prosecution.

To determine whether prosecution history estoppel applies, the court must consider (1) whether there was a surrender of material, (2) whether it was for reasons of patentability, and (3) whether the accused design is within the scope of the surrender.

For design patents, the drawings define the scope of the invention, not the claims. Therefore, the court must look to what materials in the drawings the applicant surrendered. Here, the applicant removed drawings with two holes and no holes in the corner post. This constituted surrender of these designs and limited the design to a windshield with four holes in the corner post.

The Court next determined that the material was not surrendered for reasons of patentability—e.g., anticipation, obviousness, etc.—but it was surrendered in order to secure the patent. Pacific Coast argued that the doctrine of prosecution history estoppel only applies to surrenders to avoid the prior art, but the Court disagreed, finding the doctrine was broader than that. Any narrowing amendment made to satisfy any requirement of the Patent Act that narrows the scope of the patent qualifies. The Court concluded that amendments to satisfy a restriction requirement for design patents qualify. Notably, the Court specifically stated that it was expressing no opinion on whether this same analysis would apply to utility patents.

Finally, the Court considered whether the accused design was within the scope of the surrender. Malibu Boats argued that everything but a four-hole design was surrendered, but the Court wasn’t so sure. The patentee clearly surrendered a two-hole design and obtained coverage for a four-hole design, but did not seek coverage or surrender a three-hole design. Malibu Boats did not argue that a three-hole design was not colorably different from a two-hole design. Therefore, the Court concluded that no prosecution history estoppel arose because the surrendered material was different from the accused device (two-hole versus three-hole). The Court noted that under these procedural circumstances that it did not have to engage in an analysis of whether the scope of the surrender was to be measured by a colorable imitation standard.

Conclusion

This case presents an interesting new decision in the design patent field. Design patentees need to be careful when faced with restriction requirements, and should seriously consider filing divisional applications to avoid potential problems like these. The case also highlights the dangers of sailing in uncharted legal waters, where the Court may hold the lack of an argument against you when it may not have been clear that you needed to make it in the first place.

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.

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.

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.