Category Archives: Preserving Innovation/Intellectual Property

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Federal Circuit Affirms ITC’s Determination on Sec. 337 Domestic Industry Litigation Expenses

ItoGuest Commentary

by Emi Ito Ortiz, Adduci, Mastriani & Schaumberg, L.L.P.

On May 13, 2013, in Motiva, LLC v. U.S. Int’l Trade Comm’n, No. 12-1252 (Fed. Cir. May 13, 2013), the Federal Circuit affirmed the International Trade Commission’s determination that a complainant failed to satisfy the domestic industry requirement of Section 337 based on litigation expenses allegedly related to licensing.  The case was an appeal from ITC Investigation No. 337-TA-743, Certain Video Game Systems and Controllers.  Section 337 requires a complainant to prove it has “an industry in the United States, relating to the articles protected by the patent . . .  [that] exists or is in the process of being established.”  19 U.S.C. § 1337(a)(2).  Such an industry can be based, inter alia, on a substantial investment in exploitation of the patent through licensing.  See 19 U.S.C. § 1337(a)(3)(C).  In Motiva, the Federal Circuit agreed with the ITC that litigation expenses can count towards the establishment of a domestic industry only if the litigation encourages the adoption and development of articles that incorporate the asserted patents.

Underlying Investigation.  In the underlying investigation, Motiva accused Nintendo of violating Section 337 by importing, selling for importation, or selling after importation its Wii game system, which allegedly violated two Motiva patents.  Nintendo asserted that Motiva had no domestic industry because it did not have commercialized products incorporating the asserted patents nor activities aimed at creating such products.  Instead, Motiva’s sole activity relating to the patents at issue was litigation against Nintendo, which was insufficient to establish a domestic industry.  The ITC sided with Nintendo, finding no domestic industry. Continue reading →

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Supreme Court Observations: “Blame-the-Bean” Defense Fails in Bowman v. Monsanto

Haas_ThomasGuest Commentary

by Thomas M. Haas, Thompson Hine LLP

In a short, unanimous decision, the U.S. Supreme Court held Monday that the doctrine of patent exhaustion “does not permit a farmer to reproduce patented seeds through planting and harvesting without the patent holder’s permission.” (Bowman v. Monsanto) Thus, for the time being, the Supreme Court has maintained the status quo for patent exhaustion.

Farmer Vernon Hugh Bowman purchased patented “Roundup Ready” seeds for his initial crop of soybeans. He subsequently chose to plant cheaper seed for late-season soybean planting. He went to a grain elevator that held soybeans typically sold for feed, milling and other uses to purchase new seed, reasoning that most of those soybeans would be resistant to Roundup, as they initially came from patented Roundup Ready seeds. Bowman was correct; the seeds did in fact contain the genetic material conferring resistance to Roundup.

Bowman argued that Monsanto’s patent rights were exhausted with the sale of the first crop of beans. Bowman also said he should not be liable, in part, because soybeans naturally sprout when planted.

His request found no sympathy. The Court considered Bowman’s argument essentially an argument for an exception to the patent exhaustion doctrine. “Bowman planted Monsanto’s patented soybeans solely to make and market replicas of them, thus depriving the company of the reward patent law provides for the sale of each article,” Justice Kagan wrote for the Court. “Patent exhaustion provides no haven for such conduct.” The Court also failed to accept Bowman’s argument regarding the nature of seeds. “We think the blame-the-bean defense tough to credit,” the Court said.

This ruling is no surprise to those who follow the Supreme Court. In fact, this decision was foreshadowed in the opinion the Court set out in J.E.M. Ag Supply v. Pioneer Hi-Bred Int’l  (2001), in which the Court clearly explained that a patent holder could prohibit a farmer who legally purchases and plants a protected seed from saving harvested seed for replanting. For those in the biotech industry, Monday’s decision merely reaffirmed the law as it has been understood for years – the purchase of a patented product does not confer the right to make copies of the patented product. Mitchell v. Hawley, 16 Wall. 544 (1873).

For other industries, some mystery remains. Though the Court has maintained the status quo for certain types of patented products, it has left the door open for revisiting patent exhaustion in the future. “Our holding today is limited – addressing the situation before us, rather than every one involving a self-replicating product,” the Court said. “We recognize that such inventions are becoming ever more prevalent, complex, and diverse.”

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Want Clarity on Software Patents?: Skip CLS Bank Int’l Opinion and Wait for Supreme Court Review

bethShaw-0580editConvertedProfile-e1360002102239Featured Regular Expert Column

Beth Z. Shaw, Brake Hughes Bellermann LLP

In January, I wrote a WLF Legal Opinion Letter entitled CLS Bank Int’l v. Alice Corp.: Clearer Software Patent Guidance?, which asked if clear software patent guidance would emerge from the U.S. Court of Appeals for the Federal Circuit’s en banc review of CLS Bank (opinion). The answer is an unequivocal “no!”

Seven of the ten members (a majority) of the Federal Circuit court have agreed that the method and computer-readable medium claims in the case fail to recite patent-eligible subject matter. The court was evenly split on the patent eligibility of the system claims. No majority agreed on why, or how, system claims should be analyzed. Further, no majority agreed on the legal rationale as to why the method claims are not patent eligible. Thus, incredibly, despite 135 pages, “nothing said today beyond our judgment has the weight of precedent.”

Judge Newman, concurring in part and dissenting in part, quite accurately summarized the result of the en banc panel:

The ascendance of section 101 as an independent source of litigation, separate from the merits of patentability, is a new uncertainty for inventors. The court, now rehearing this case en banc, hoped to ameliorate this uncertainty by providing objective standards for section 101 patent-eligibility. Instead we have propounded at least three incompatible standards, devoid of consensus, serving simply to add to the unreliability and cost of the system of patents as an incentive for innovation. With today’s judicial deadlock, the only assurance is that any successful innovation is likely to be challenged in opportunistic litigation, whose result will depend on the random selection of the panel.

Continue reading →

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Update: Ninth Circuit Ruling a Final End to Copyright “Troll’s” Legal Charade?

copyrightNearly two years ago, in a Legal Pulse post and a WLF Legal Opinion Letter, we discussed the strong judicial response to the copyright litigation scheme pursued by a company called Righthaven LLC. Righthaven was created at the behest of newspaper-owning media company Stephens Media as a vehicle to sue bloggers and other online information outlets which had reprinted articles originally published in Stephens’ newspapers. Thankfully rather than pay the copyright troll’s “toll,” several bloggers refused and Righthaven sued them.

Federal District Judge Philip Pro dismissed Righthaven’s suit for two reasons.  First, because the agreement between Stephens Media and Righthaven assigned only the right to sue potential copyright infringers, Righthaven did not have the exclusive rights needed to possess standing to sue. Second, the bloggers’ reprinting of articles constituted fair use under federal law. Several days after this ruling, Judge Pro ruled that Righthaven had to pay $34,000 in attorneys’ fees. In a separate but related case, a federal judge sanctioned Righthaven $5,000 for failing to disclose its financial ties to Stephens Media.

Apparently not embracing the modified maxim “it’s time to quit while you’re behind,” Righthaven decided to spend more money on legal fees and appealed its loss to the U.S. Court of Appeals for the Ninth Circuit.

In an appropriately terse opinion yesterday, the Ninth Circuit panel unanimously affirmed Judge Pro on the issue of standing. Circuit Judge Clifton initiated his opinion with a reference to an Abraham Lincoln story about a lawyer who tried to “establish that a calf had five legs by calling its leg a tail.” As Lincoln observed, “calling a tail a leg does not make it so.” Similarly, just because Righthaven called itself a copyright owner does not mean it in fact is.

The court essentially went on to restate the very clear legal standards relied upon by District Judge Pro. Regretfully for bloggers and other online information providers, the court vacated the portion of Judge Pro’s ruling that the reprinting activity constituted fair use, since the case could be dismissed on procedural grounds.

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A Judicial Solution to Non-Practicing Patent Holders’ Suits Vs. End Users?

coffee wi-fiCross-posted at WLF’s Forbes.com contributor page

Litigation by “patent-assertion entities” (PAE) was back in the news again last week with a jury decision from the Eastern District of Texas. The jury found that patents held by Alexsam Inc. which purportedly cover a system for processing pre-paid electronic gift cards were valid, allowing Alexsam’s infringement claims against Best Buy, Barnes & Noble, Gap, Home Depot, McDonald’s, JC Penny, and other retailers to advance. Whether the actions will proceed or the retailers decide to cut their losses and settle is unclear.

Claims by patent-assertion entities rarely get to the stage at which the gift card litigation currently stands. This is especially true when patent holders target purchasers and users of technology which allegedly infringe on their rights, rather than (or in addition to) the technology’s producers. When posed with the choice of investing six-figures defending a product you didn’t even create, or paying the PAE a four- or five-figure licensing fee, most small businesses will choose the latter, no matter how weak the legal claims may be.

Online technology journal Ars Technica has shined a spotlight on some of these PAE litigation threat campaigns. Several stories (here and here) document one anonymous patent holder’s systematic targeting of small businesses and even some individuals who use scanners that can send the scanned files via e-mail. The “scanner-trolling scheme,” as Ars calls it, divides up the U.S. into six areas, and in each area, a separate shell company demands $800-$1,200 licensing fees per employee to avoid a lawsuit. Another story focuses on how a Luxembourg-based PAE is suing cash-strapped public transit systems over their use of vehicle-tracking systems. The Electronic Frontier Foundation recently stepped in to request a reexamination of this PAE’s patent. Other stories have documented the litigation crusade of Innovatio, which has sued businesses offering Wi-Fi service on their premises. One law firm even has an entire section of its website devoted to the suits.

Such targeting of end users has led to calls from leaders in business and Congress to immunize such companies and individuals from patent lawsuits. While that may sound promising to under-assault small businesses, their next thought will likely be, “how many years did it take to pass the America Invents Act?” Continue reading →

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Does Federal Circuit’s K-Tech Communications Ruling Further Ease Path to Patent Litigation?

bethShaw-0580editConvertedProfile-e1360002102239Featured Expert Column

Beth Z. Shaw, Brake Hughes Bellermann LLP

Last week, the Federal Circuit reversed a district court’s judgment dismissing two patent lawsuits. K-Tech Telecommunications, Inc. (“K-Tech”) sued Time Warner Cable, Inc. (“TWC”) and DirecTV for patent infringement. TWC and DirecTV moved to dismiss the lawsuits because they argued the original complaints lacked factual specifics—including any identification of specific devices. The district court agreed and dismissed the cases for “failure to state a claim,” under the standards articulated in Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009). On appeal, however, the Federal Circuit reversed, holding that the complaints contained enough specificity and plausibility for the lawsuits to continue. The Federal Circuit repeated that, to the extent any conflict exists between Twombly and the Federal Rules of Civil Procedure’s Forms regarding pleadings requirements, “the Forms control.”

K-Tech describes its patents as systems for modifying channel numbers or carrier frequencies to identify a television program. According to K-Tech, the Federal Communications Commission requires that all digital television signals in the U.S. follow certain specifications that define information included in a digital television signal (such as channel numbers and carrier frequencies). K-Tech contends that because TWC and DirecTV identify programs broadcast over their cable or satellite systems with a channel number, TWC and DirecTV use the methods and systems protected by the K-Tech patents to update the digital signals they receive.

Form 18 in the Federal Rules of Civil Procedure sets forth a sample complaint for direct patent infringement. The Federal Circuit stated that “any criticism we may have regarding the sufficiency of the forms themselves is strictly proscribed by Supreme Court precedent.” In other words, the Supreme Court has held what pleading requirements are enough to bring a case of patent infringement. The main requirements are a plausible short and plain statement of the plaintiff’s claim. Continue reading →

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Federal Circuit Reverses $593 Million Dollar Judgment in Stent Case

bethShaw-0580editConvertedProfile-e1360002102239Featured Expert Column

Beth Z. Shaw, Brake Hughes Bellermann LLP

The Federal Circuit reversed a $593 million dollar judgment last week against Cordis Corporation (Saffran v. Johnson & Johnson and Cordis). An Eastern District of Texas judge had upheld a jury’s calculation of damages and had awarded an additional amount in interest, bringing the total to over $593 million. Cordis Corporation is a Johnson and Johnson subsidiary.

The Federal Circuit held that Cordis did not, as a matter of law, infringe a patent covering stents. Stents are tiny mesh tubes used to prop open arteries that have been cleared of blockages.

The Federal Circuit reversed the case based on “claim construction,” or the interpretation of the words in the claims of the patent. Judge Lourie, writing for the three-judge panel of the court, interpreted the terms “device” and “release means” in a way that meant that Cordis did not, as a matter of law, infringe the patent. Of particular note to practitioners, the court found “clear prosecution disclaimer” of certain “devices” based on Saffran’s statements made during prosecution.

The two other judges on the panel concurred, each agreeing that Cordis did not infringe as a matter of law, but for different reasons. Judge Moore agreed with Judge Lourie’s interpretation of “device” but not of “release means.” Judge O’Malley, herself a former district court judge, agreed with Judge Lourie’s interpretation of “release means” but not of “device.”

The fact that the court can reverse such a large award based on the meaning of a single term in the patent illustrates the power of the court’s leeway when interpreting the claims, which they currently do without any deference to the district court’s interpretation. As discussed in a previous post (Entire Federal Circuit to Review Its Deference to Trial Judges’ Patent Claim Determinations), the entire court is scheduled to revisit the question of whether or not to give more deference to a district court’s claim construction. This particular case may have turned out the same way regardless of the level of deference to the trial judge, as it appears that all three judges found at least one reason to reverse the judgment and none of the judges focused on the standard of review for claim construction.

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Entire Federal Circuit to Review Its Deference to Trial Judges’ Patent Claim Determinations

bethShaw-0580editConvertedProfile-e1360002102239Featured Expert Column

Beth Z. Shaw, Brake Hughes Bellermann LLP

A patent includes a list of “claims.” The claims are supposed to describe and limit the scope of an invention. Those who draft and prosecute patent applications labor over which words to choose that will best protect and properly describe the invention. And exactly how those claims are interpreted is often the most challenging and contested part of every patent trial.

In 1998, the U.S. Court of Appeals for the Federal Circuit held that patent claim construction is an issue of law, not fact. This meant that the judges of the Federal Circuit could review the claim construction without any deference to a district court judge’s interpretation of the claims. Cybor Corp. v. FAS Technologies, Inc., 138 F.3d 1448 (Fed. Cir. 1998). Some have argued that trial judges are better equipped than appellate judges to make factual determinations surrounding claim construction, especially in close cases, and that those trial judges should be given at least some deference.

Now the Federal Circuit has agreed to reconsider whether to overrule Cybor. Since 1998, several judges have spoken publicly to express opinions that there is a need to reconsider Cybor. The court has previously denied other en banc requests on the same issue. For example, in 2006, six Federal Circuit judges wrote their own separate opinions to a denial of an en banc request, many expressing their desire to see a case that reconsidered at least some aspects of the Cybor decision. Amgen Inc. v. Hoechst Marion Rousell, Inc., 469 F.3d 1039 (Fed. Cir. 2006). Since the Amgen denial in 2006, the composition of the court has changed quite dramatically. Several judges who participated in the Amgen decision on the petition for rehearing having since retired or taken senior status.

The court’s en banc order on March 15, 2003, in Lighting Ballast Control LLC v. Universal Lighting Technologies, Inc., Fed. Cir., No. 2012-1014, states that briefs should address the following issues:

  1. Should this court overrule Cybor Corp. v. FAS Technologies, Inc.?
  2. Should this court afford deference to any aspect of a district court’s claim construction?
  3. If so, which aspects should be afforded deference?
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Are Antitrust Agencies Nudging Standard Setting Bodies on Patent Licensing?

DOJ150px-US-FederalTradeCommission-Seal.svgEUAny article authored by three current or former economists from the world’s most powerful antitrust institutions would merit the free enterprise community’s attention (even if their bylines include the standard disclaimer that their views don’t necessarily reflect the views of their employers). But the context in which a recent Competition Policy International article was released and the message it sends make the piece required reading, especially for those in high-tech industries.

The FOSS Patents blog first flagged the article, Standard Setting Organizations Can Help Solve the Standard Essential Patents Licensing Problem. Its authors are the chief economist at the European Commission’s DG Competition agency; a former chief economist of the Justice Department’s Antitrust Division; and the Director of the Federal Trade Commission’s Bureau of Economics. The article was published in the context of a still-simmering debate over “standard-essential patents” (SEPs), a subject which we’ve addressed here (and here) several times. WLF has also waded into the most recent U.S. government pronouncement on SEPs, FTC’s consent decree with Google, with comments to the Commission.

The two thorniest challenges related to SEPs are: 1) whether SEP holders should be permitted to seek enforcement of their patents through injunction or exclusion order? and 2) what constitutes a “reasonable” royalty for such a patent, so that the patent holder is in compliance with its commitment to the standard setting organization (SSO) that set the underlying standard? Continue reading →

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Substantial Patent Licensing with No U.S. Manufacturing Deemed Sufficient to Seek Remedy at US ITC

bethShaw-0580editConvertedProfile-e1360002102239Featured Regular Expert Column

Beth Z. Shaw, Brake Hughes Bellermann LLP

The Federal Circuit reaffirmed that substantial investment in licensing activities—even without manufacturing in the United States—is enough to bring an exclusion action in the U.S. International Trade Commission (ITC), in denying a petition for panel rehearing and rehearing en banc on January 10, 2013. The Federal Circuit denied Nokia Corp.’s petition for rehearing and rehearing en banc of InterDigital Commc’ns, LLC v. Int’l Trade Comm’n (2010-1093) (per curiam). A panel of the Federal Circuit also issued an opinion to address Nokia’s “much more detailed argument . . . on rehearing” regarding Section 337 and InterDigital’s licensing activities. Section 337, the court held, provides protection for industries that were based on the creation and exploitation of intellectual property even if they do not produce the ultimate products that embody that technology.

InterDigital had previously asked the ITC to investigate whether two of its patents, U.S. Patent Nos. 7,190,966 and 7,286,847, were infringed by Nokia. The administrative law judge (ALJ) at the ITC found that Nokia did not infringe the InterDigital patents and the ITC affirmed. On appeal, the Federal Circuit held that the ITC erred in construing certain claim terms and reversed the ITC’s finding of no infringement. The court also dismissed Nokia’s argument that InterDigital’s patent licensing activities did not satisfy the domestic industry requirement of section 337, holding that patent licensing alone may satisfy this requirement, regardless of whether the objects of the licensing activities are actually made in the United States. The court restated that companies can satisfy the domestic industry requirement through substantial domestic investment in licensing activities, and that there is no requirement that the licensed products are actually manufactured in the United States.

To reach its conclusion, the majority (authored by Judge Bryson and joined by Judge Mayer) construed the text of the statute and also examined the legislative history of Section 337. The court noted that proposals were introduced in Congress to expand the coverage of Section 337 so that it would explicitly provide protection for American industries that did not manufacture products but were engaged in engineering, research and development, or licensing of the technology that others used to make products. The statute, the court held, now provides protection for industries that were based on the creation and exploitation of intellectual property even if they did not produce the ultimate products that embodied that technology. Continue reading →