Supreme Court Observations: Kimble v. Marvel Entertainment, LLC

Kaminski_Jeffri_LRFeatured Expert Contributor – Intellectual Property (Patents)

Jeffri A. Kaminski, Venable LLP

The U.S. Supreme Court recently decided a closely watched case concerning contract rights and patent royalties. In Kimble v. Marvel Entertainment, LLC the Court upheld its long standing precedent and determined that parties cannot agree to patent royalty payments that extend beyond the expiration of the patent.

The case originated when Kimble and Marvel agreed to a patent license for a toy glove that Kimble had patented. The licensing agreement called for a lump sum payment and running royalties for a license to the patent as part of a settlement of ongoing litigation. The agreement did not set an end date for the royalty payments. In making its decision the Court upheld its ruling in Brulotte v. Thys Co., 379 U.S. 29 (1964), holding that licenses requiring payment of patent royalties after patent expiration are “unlawful per se.” Brulotte has been the subject of criticism in the 50 years since it was decided, but the Court determined that was not enough of a reason to overturn its longstanding precedent. Continue reading

Supreme Court Holds that Belief Patent Is Invalid Is No Defense to Induced Infringement

Kaminski_Jeffri_LRFeatured Expert Contributor – Intellectual Property (Patents)

Jeffri A. Kaminski, Venable LLP

The Supreme Court declined to create a new defense this week for defendants in patent infringement cases, holding that a defendant’s belief regarding patent validity is not a defense to a claim of induced infringement under 35 U.S.C. § 271(b), as a matter of first impression in Commil USA, LLC v. Cisco Systems, Inc. This is welcome news to some patent owners who have felt the legal tide has been turning against them. However, the Court also recognized that so-called “patent trolls” exist and that frivolous patent infringement lawsuits are being brought in federal courts. The Court stressed that district courts have authority under Rule 11 and 35 U.S.C § 285 to levy sanctions and award fees to dissuade frivolous cases from being filed. With its ruling, the Court continued its trend of trying to maintain a balance between patent owners and accused infringers.

The Court began its analysis by clarifying the current state of the law. Direct infringement is a strict liability offense. The state of mind of the infringer is not relevant in determining liability for direct infringement. In contrast to direct infringement, liability for inducing infringement attaches only if the defendant knew of the patent and that “the induced acts constitute patent in­fringement.” Global-Tech Appliances, Inc. v. SEB S.A. It is not enough if the party charged with induced infringement did not know that the acts it induced would infringe. Continue reading

California’s New Scrutiny of Patent Litigation Settlements Will Not Stand Under Federal Law

cali sealThe California Supreme Court earlier this month issued an opinion that subjects litigants who settle their patent disputes to scrutiny under state antitrust law. The court reasoned that such settlements may create unreasonable restraints on trade. While the decision in In re Cipro Cases I & II to reinstate antitrust claims was not overly surprising—after all, the U.S. Supreme Court had previously held in FTC v. Actavis, Inc. that some patent litigation settlements might violate federal antitrust law—the breadth of the California Supreme Court’s decision could have a particularly negative impact on the free-enterprise system. Indeed, the decision suggests that parties to a patent litigation settlement will have great difficulty ever avoiding California antitrust liability if the settlement entails transferring anything of value from the patent holder to the alleged infringer. Because Cipro’s new state-law antitrust standard is so much more exacting than the standard announced by the U.S. Supreme Court in Actavis, federal antitrust law may well trump California’s standard. Indeed, were Cipro to reach the U.S. Supreme Court, the Court likely would reverse on federal preemption grounds.

“Reverse-Payment” Patent Settlements

When parties to litigation enter into a settlement, one would normally expect that any cash payments would flow from the defendant to the plaintiff. The normal expectations have been reversed in the context of litigation involving prescription-drug patents, however, as a result of financial incentives created by the Hatch-Waxman Act, a federal statute designed to ensure that generic versions of prescription drugs enter the market more quickly. The Act includes a provision that permits generic companies, by declaring to the Food and Drug Administration a belief that the patent held by a brand-name drug company is invalid, to essentially force the patentee to immediately file a patent infringement suit. It also grants huge financial awards to generic companies that successfully challenge drug patents. Continue reading

Playing Field May Continue to Shift for Patent Litigants on Willful Infringement

Kaminski_Jeffri_LRFeatured Expert Contributor–Intellectual Property (Patents)

Jeffri A. Kaminski, Venable LLP

While various patent reform proposals percolate on Capitol Hill, the courts continue to decide cases that impact the issues. A recent U.S. Court of Appeals for the Federal Circuit decision in Halo Electronics, Inc. v. Pulse Electronics, Inc. maintains the current standard for enhanced damages for willful infringement (a victory for accused infringers), but signals that a change may be coming (a victory for patent owners). Currently, a patent owner must prove that an infringer willfully infringes by clear and convincing evidence in order to recover enhanced damages. Under 35 U.S.C. § 284, enhanced damages may be up to three times the damages found.

In Halo Electronics, the Federal Circuit passed on an opportunity to change, and perhaps lower, the standard required for proving willful infringement, similar to how the Supreme Court lowered the standard for fee-shifting in Octane Fitness (see our previous post on fee-shifting). Although the court passed on the opportunity this time, four of the seven Federal Circuit judges are now on record as favoring reconsideration of the standard for enhanced damages for willful infringement. Continue reading

The Supreme Court Should Not Abandon “Stare Decisis” in “Kimble v. Marvel Enterprises” Case Given Reliance Interest

At issue in Kimble v. Marvel Enterprises

At issue in Kimble v. Marvel Enterprises

The Supreme Court’s 1964 decision in Brulotte v. Thys Co. has been among the Court’s more heavily criticized patent law decisions. A number of academics and appeals court judges have complained that Brulotte, which establishes a rule governing construction of patent licensing agreements, is based on a misunderstanding of the economic considerations underlying such agreements. Perhaps in response to that criticism, the Court granted certiorari in Kimble v. Marvel Enterprises, Inc. to consider a single question: should it overturn the 50-year-old Brulotte rule? The Court will hear oral arguments in Kimble on March 31.

The correct answer is a resounding “no.” At oral argument, the record will show that parties negotiating patent licensing agreements have relied on Brulotte for half a century when drafting terms governing royalty payments. Overturning Brulotte would be a patent troll’s dream. It could expose licensees to unforeseen royalty demands based on long-forgotten license agreements that they reasonably assumed—in reliance on the Brulotte rule—imposed no additional payment obligations after the expiration of the licensed patent. As with patent trolls, the potential liability in some cases may be so high that in terrorem settlement is the licensee’s only reasonable choice. In other cases, the nuisance value of the claim may be smaller than the cost to litigate. Either way, a shortsighted decision in Kimble could lead to decades of costly and vexatious litigation to no one’s benefit. Continue reading

FTC Commissioner Looks Back, and Ahead, on Patent Litigation Reform Efforts

FTC_Man_Controlling_TradeCommissioner Julie Brill of the Federal Trade Commission (FTC) offered some interesting year-end thoughts on abusive litigation by patent-assertion entities (“PAE”, or to some, “patent trolls”) in a speech last week. Most notable in Commissioner Brill’s comments was her call for legislative change even as FTC and the federal courts are addressing some of the legal and economic incentives for abusive patent litigation.

Brill discussed the Commission’s ongoing study of patent-assertion entities (the so-called 6(b) study), for which a final report is anticipated by the end of 2015. She emphasized that one of the issues FTC is assessing is the practice of “privateering,” where an operating company sells or licenses a patent to an assertion entity, which in turn enforces the patent against the operating entity’s market rivals. A May 2014 Washington Legal Foundation Web Seminar, Patent Assertion and “Privateering”: When Do Antitrust Law Concerns Arise When the Patent Is the Product?, focused on this practice.

The speech also referenced the Commission’s first enforcement action against a patent-assertion entity, which resulted in a November 13 consent decree. The action involved notorious “scanner troll” MPHJ, which sent thousands of licensing demand letters that threatened litigation unless the target business paid MPHJ upwards of $1,000 per employee. FTC charged that MPHJ had fraudulently asserted that it had entered into licenses with some of its targets, and falsely claimed that litigation was imminent.

thumbnailTrollCommissioner Brill went on to stress the impact several 2014 Supreme Court decisions had on the larger patent-assertion problem. She focused on the indefinite nature of many PAE-held patents, an issue that the Court addressed in Nautilus Inc. v. Biosig Instruments, Inc.; the tendency of PAEs to “pass off old abstract ideas as inventions merely by implementing them using a computer,” which arose in Alice Corp. Pty. Ltd. v. CLS Bank Int’l; and the difficulty patent defendants had in seeking attorneys’ fees when they prevailed in court against PAEs, which the justices addressed in Octane Fitness, LLC v. Icon Health & Fitness, Inc. and Highmark v. Allcare Health Mngt. Systems, Inc.

She then stated that “despite these recent cases, there are still important issues for Congress to address.” We were pleased to see that among the areas Commissioner Brill highlighted as meriting continued congressional attention was that patent “complaints [must] provide specific allegations of what infringes a patent’s claim and how the defendant infringes them.” The current pleading standard, governed by the antiquated form (Form 18) Federal Rule of Civil Procedure 84 dictates for patent suits, encourages frivolous litigation, as we’ve argued previously.

It is unclear what lies ahead for patent litigation reform in the 114th Congress. But one can trust that with so much at stake, Senators and Representatives will heed Commissioner Brill’s admonition that Congress not “wait for completion of our 6(b) study” to move the debate forward.

Also published by Forbes.com on WLF’s contributor page

Concurrence in Federal Circuit’s “Ultramercial” Ruling Sends Pointed Message to Patent Litigants

Kaminski_Jeffri_LRFeatured Expert Contributor – Intellectual Property (Patents)

Jeffri A. Kaminski, Venable LLP

The recent Federal Circuit decision in Ultramercial v. Wild Tangent continues the trend of courts invalidating software and business method patents made vulnerable by the Supreme Court’s decision in Alice Corp. v. CLS Bank International. The Ultramercial decision also continues the wave of “patent reform” in the courts, at the Patent Office, and in Congress. Software and business method patent owners and applicants should be concerned by these recent developments, and alleged infringers should be encouraged. The concurring opinion by Judge Mayer describes how an early determination of patent eligibility during litigation may help stem “[t]he scourge of meritless infringement claims [that] has continued unabated for decades.”

The Federal Circuit invalidated Ultramercial’s patent as being directed to an abstract idea, which is not patentable subject matter under 35 U.S.C. § 101. The asserted patent, U.S. Patent No. 7,346,545 (“the ’545 Patent”), is optimistically titled, “Method and system for payment of intellectual property royalties by interposed sponsor on behalf of consumer over a telecommunications network.” The main patent claim includes eleven specific steps for displaying an advertisement in exchange for access to copyrighted media. However, the appellate court determined that the patent “describes only the abstract idea of showing an advertisement before delivering free content” and is therefore invalid.

In spite of the eleven steps enumerated in the method claim, the court held that merely adding additional routine steps to an abstract idea “does not transform an otherwise abstract idea into patent-eligible subject matter.” Furthermore, although the claims of the ’545 Patent were tied to a general purpose computer, “adding a computer to otherwise conventional steps does not make an invention patent-eligible” either. Continue reading