June 2014
CIPA Journal
By Anthony C. Tridico, Ph.D.; Clara N. Jiménez
Authored by Clara N. Jimenez and Anthony C. Tridico, Ph.D.
In recent years, the landscape of U.S. patent law has undergone dramatic changes, and this year is no exception. While a number of legislative initiatives work in the background to deal with concerns over patent litigation and the U.S. Patent and Trademark Office ("Patent Office") continues to learn how to navigate the America Invents Act, the Supreme Court's docket for the 2013-2014 term has provided another exciting ride through a number of issues. Perhaps recognizing the impact of intellectual property in the global economy, the Court has considered seven cases during this term that touch on everything from patentability to litigation cost-shifting provisions. This article presents a roadmap to the issues and potential practical implications posed by each case.
In Nautilus, Inc. v. Biosig Instruments, Inc., No. 13-369, the Supreme Court reversed the Federal Circuit's "insolubly ambiguous" standard, under which a claim would not be found invalid as "indefinite" unless its language was so unclear that it could not be construed by the court.1 Under Nautilus, "a patent is invalid for indefiniteness if its claims, read in light of the specification delineating the patent, and the prosecution history, fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention."2 Unfortunately for the patent owner, the specification did not provide a definition for the phrase at the center of the dispute. Significantly, the Patent Office (during reexamination), the trial court, and the Federal Circuit all arrived at conflicting interpretations of the claim language. The Federal Circuit decided the scope of claim coverage, as a matter of law, without deference to the holding of the trial court, which had invalidated the claims as lacking definiteness.3
The impact of Nautilus is quite possibly an increase in a lack of definiteness defense during district court litigation. For practitioners, the ruling in Nautilus reemphasizes that carefully drafted, high-quality claims with well-defined terms are the core of a strong patent. The best advice continues to be drafting patent applications that are clear and consistent in their use of claim terms, and drafting claims with an eye towards potential enforcement.
In Medtronic, Inc. v. Mirowski Family Ventures, LLC, No. 12-1128, the Supreme Court ruled that a licensor bears the burden of persuasion on the issue of patent-claim coverage over products that the licensor asserts fall within the scope of the license. According to the Court, the burden remains on the licensor even if the dispute arises in the context of a declaratory judgment action. Here, under the agreement between the parties, if the licensor provided notice to the licensee that a new device infringed a licensed patent, the licensee could either (1) cure the nonpayment, (2) challenge the validity or infringement of the patent through a declaratory judgment action and deposit any disputed royalties in an escrow account pending resolution of the action, or (3) simply ignore the agreement and not pay royalties, whereby the licensor could terminate the license and bring an infringement action. In this case, the licensor asserted that certain new products infringed two of its patents. Following the procedures in the license agreement, the licensee placed the asserted royalties in an escrow account and filed a complaint in a trial court seeking declaratory judgment. Following a bench trial, the trial court held that the licensor had the burden of showing patent infringement, and because it had not proven infringement, either literally or under the doctrine of equivalents, the licensee was entitled to a declaratory judgment. The Federal Circuit reversed, holding that when a licensor-patentee is a declaratory judgment defendant, and a license agreement prevents the patentee from asserting a counterclaim of infringement, the licensee bears the burden of showing noninfringement. The Supreme Court disagreed with the Federal Circuit and reversed.4 The Court emphasized that declaratory judgment action remains a viable procedural device for a licensee to challenge the scope of a licensed patent without risking a patent-infringement suit.
In Limelight Networks, Inc. v. Akamai Technologies, Inc., No. 12-786, the Supreme Court held that a defendant may not be held liable for inducing patent infringement under 35 U.S.C. § 271(b) when no single entity has committed direct infringement under § 271(a).5 In its opinion, the Court acknowledged the Federal Circuit's concern with the possibility that would-be infringers could evade liability by dividing performance of a method patent's steps with another "whom the defendant neither directs nor controls."6 Nevertheless, the Court concluded that such concern does not justify altering the Patent Act's clear requirements for inducement liability by creating "for §271(b) purposes some free-floating concept of 'infringement' both untethered to the statutory text and difficult for the lower courts to apply consistently."7
In the appeal below, the Federal Circuit abandoned the single-entity rule for finding induced infringement of a process claim where all of the method claim steps are performed by multiple parties rather than by a single entity.8 The patent at issue was directed to a method of delivering Internet content by storing portions of a content provider's web page on a network of ghost servers and modifying the web page to redirect web-browser requests for the stored portions to the ghost servers, thereby efficiently accessing the web page. Limelight provides access to a similar private network of servers storing portions of content providers' web pages, but instructs its customers to modify their web pages as necessary to redirect the browser requests. The Federal Circuit's modified standard for induced infringement was rooted in equity: "a party who performs some of the steps itself and induces another to perform the remaining steps that constitute infringement has precisely the same impact on the patentee as a party who induces a single person to carry out all of the steps."9 The Supreme Court's reversal provides a more rigid, bright-line resolution to the controversial issue of divided infringement.
The attorney fee-shifting provision of 35 U.S.C. § 285 was at issue in both Octane Fitness, LLC v. ICON Health & Fitness, Inc., No. 12-1184, and Highmark Inc. v. Allcare Health Management System, Inc., No. 12-1163. In Octane Fitness, the issue on the appeal below was what constitutes an "exceptional case," such that attorney fees can be awarded to the prevailing party.10 The Federal Circuit previously held that a case is only exceptional when "both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless," absent misconduct in litigation or in securing the patent.11 The Federal Circuit's test included both an objective component ("objectively baseless") and a subjective component ("subjective bad faith"). The Supreme Court, reversing, held that the Federal Circuit's previous test was unduly rigid, and that § 285 is inherently flexible.12 Under Octane Fitness, an "exceptional" case is "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."13 Moreover, the Court reiterated that the "[d]istrict courts may determine whether a case is 'exceptional' in the case-by-case exercise of their discretion, considering the totality of the circumstances."14 The Court also rejected the Federal Circuit's requirement that patent litigants establish their entitlement to fees under § 285 by clear and convincing evidence. As noted by the Court, § 285 "demands a simple discretionary inquiry; it imposes no specific evidentiary burden, much less such a high one."15
The question presented in Highmark was whether a trial court's exceptional-case finding under § 285, based on its judgment that a suit is objectively baseless, is entitled to deference. The Supreme Court, vacating, held that a trial court's exceptional-case finding may only be reviewed for "abuse of discretion," and not de novo.16 The decision starts from the analysis set forth in Octane Fitness, which the Court contends settles the dispute in Highmark "because § 285 commits the determination whether a case is 'exceptional' to the discretion of the district court, that decision is to be reviewed on appeal for abuse of discretion."17
In addition to the substantive issues addressed by the Supreme Court, the mere number of cases on its docket is, in itself, newsworthy. Given that the Court receives thousands of petitions for hearing, and only grants about 60-70, the number of patent cases heard in the past has been around two or three cases per term (if at all). For example, during the last term, the Court only considered two patent cases, and during each of the 2010-2011 and 2011-2012 terms, the Court considered three cases.
In Alice Corp. Pty. Ltd. v. CLS Bank International, No. 13-298, the Court is considering whether claims to computer-implemented inventions—including claims to systems and machines, processes, and items of manufacture—are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101. The patent at issue is directed to a computerized trading platform for exchanging obligations in which a trusted third party settles obligations between a first and second party so as to eliminate "settlement risk" (similar to an escrow arrangement). Alice asserted claims to a computerized method, a computer-readable medium containing instructions, and a computer system that implements those instructions. The trial court granted summary judgment, finding all the claims ineligible under § 101. On appeal, a majority agreed that the method and computer-readable medium claims were invalid, but the Federal Circuit was divided on the validity of the computer-system claims.18
For years, practitioners have tied software-related methods to their implementation by computer-system claims in order to address § 101 concerns. Thus, the Court's decision will potentially affect thousands of patents. So far, the Court has abstained from providing a "bright line" test for patent eligibility. We should have a decision by the end of June 2014. Stay tuned.
Endnotes
1 Nautilus Inc. v. Biosig Instruments, Inc., No. 13-369, slip op. at 1-2 (U.S. June 2, 2014)
2 Id. at 1.
3 Biosig Instruments, Inc. v. Nautilus, Inc., 715 F.3d 891 (Fed. Cir. 2013).
4 Medtronic, Inc. v. Mirowski Family Ventures, LLC, 134 S. Ct. 843, 846 (2014).
5 Limelight Networks, Inc. v. Akamai Techs., Inc., No. 12-786, slip op. at 1 (U.S. June 2, 2014).
6 Id. at 10.
7 Id.
8 Akamai Techs., Inc. v. Limelight Networks, Inc., 692 F.3d 1301 (Fed. Cir. 2012).
9 Id. at 1309.
10 ICON Health & Fitness, Inc. v. Octane Fitness, LLC, 496 F. App'x 57 (Fed. Cir. 2012).
11 Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005).
12 Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014).
13 Id. at 1756.
14 Id.
15 Id. at 1758.
16 Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744, 1748 (2014).
17 Id.
18 CLS Bank Int'l v. Alice Corp. Pty. Ltd., 717 F.3d 1269 (Fed. Cir. 2013).
Originally printed in CIPA Journal. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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