5 Ways Recent Appellate Rulings Can Affect Your Patent Case

Authored by Patrick J. Coyne

What you don't know can't hurt you, right? Not only can it hurt you, it can kill your patent infringement case. Several recent decisions by both the U.S. Supreme Court and the Federal Circuit will profoundly affect the way patent cases are tried.

Pleading Requirements

First, one criticism has been that district courts do not deal effectively with frivolous complaints. The Supreme Court's decisions in Bell Atlantic v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), should have provided some relief. They each require that the plaintiff plead sufficient facts that the claim is reasonably plausible. In McZeal v. Sprint Nextel Corp., 501 F.3d 1354 (Fed. Cir. 2007), a split panel decision sustained the adequacy of pleading based on the form for a patent infringement complaint, Form 18. Some plaintiffs have successfully resisted the requirements of Twombly and Iqbal, arguing that Form 18 establishes a lower pleading standard for patent cases. The 2014 rules package, which, absent congressional action, becomes effective Dec. 1, 2015, will abrogate the forms, including Form 18, eliminating this argument. Accordingly, we should expect to see more substantial motions practice regarding adequacy of pleadings in patent cases.

Validity

Second, subject matter patentability has become a substantial concern. In Bilski v Kappos, 130 S.Ct. 3218 (2010), the Supreme Court held that a method of hedging financial transactions was not patentable subject matter. In Association for Molecular Pathology v. Myriad, 133 S.Ct. 694 (2012), and Mayo v. Prometheus, 566 U.S. ___ (2012), the court also held that a genomic invention and an invention for measuring blood levels of metabolites to determine effective drug dosing levels were also not patentable as claiming laws of nature. Further, in Alice v.CLS Bank, 134 S.Ct. 2347 (2014), the court found that a method of running parallel electronic accounts to ensure that there are sufficient funds in an account to close transactions being made during the day was also unpatentable as being too abstract. The rule of law emerging from these decisions, however, remains less than clear.

Experience with Internet and telecom patents, along with the high rate of unpatentability in covered business method review proceedings suggests that there may be a substantial pool of patents that lack an adequate written description or include claims that are not sufficiently definite. Greater clarity may be provided by the Nautilus v. Biosig, 134 S.Ct. 2120 (2014), decision. In Nautilus, the court addressed whether claim limitations to a handle arrangement for exercise equipment were sufficiently definite. The Federal Circuit, relying on its "insolubly ambiguous" standard, held that they were. The Supreme Court vacated and remanded, holding that "insolubly ambiguous" is far too rigid a standard. Rather, Section 112 requires that the claims provide reasonable certainty.

Similarly, in Ariad v. Eli Lilly, 598 F.3d 1336 (2010), an en banc Federal Circuit, addressed the sufficiency of the written description. In Ariad, the court clarified that, although the specification need not include a detailed description of every embodiment of the invention, it must include sufficient written description to establish that the applicant had possession of the invention, as claimed. Few decisions since Ariad and Nautilus have held claims invalid for lack of reasonable certainty or adequate written description. Nonetheless, as the district courts gain experience with the Ariad and Nautilus standards, we should expect more claims to be held invalid for indefiniteness.

Claim Construction

Third, despite several laudable attempts to reconcile the law on claim construction, substantial issues remain. In Phillips v. AWH, 415 F.3d 1303 (Fed. Cir. 2005), an en banc Federal Circuit provided substantial guidance regarding how claims are to be construed. One open issue remaining after the Markman and Phillips decisions, however, was whether the district court's claim construction is entitled to deference on appeal. For decades, the Federal Circuit had held that it is not; and reviewed claim construction decisions de novo. In Lighting Ballast v. Philips, 744 F.3d 1272 (2014), the court held that the practice had become so well established that it declined to modify it on stare decisis grounds.

In Teva v. Sandoz, 135 S.Ct. 831 (2015), the court was asked to review this practice. Where the district court makes factual findings based on the intrinsic record, namely the claims, the specification, and the prosecution history, these findings are reviewed de novo. Similarly, the district court's ultimate legal conclusion on claim construction is also reviewed de novo. Yet, when a district court makes factual findings based on extrinsic evidence, these findings are reviewed only for clear error.

Some had high hopes that the Teva decision would empower district courts to make fact findings that would then be given deference on appeal. These hopes have not been realized. In Williamson v. Citrix, 792 F.3d 1292 (Fed. Cir. 2015), the Federal Circuit held, as it has in many other cases decided since Teva, that, although the district court has made factual findings based on extrinsic evidence, these findings are not material.

Inducement to Infringe

Fourth, there has also been substantial activity regarding inducement to infringe. In Global-Tech v. SEB SA, 563 U.S. 754 (2011), the court held that inducement to infringe requires both: (1) knowledge of the patent; and (2) knowledge that the alleged infringing acts would infringe the patent. In Global-Tech, the defendant had secured opinions of counsel, yet, withheld from its counsel the patent that was asserted against it. The court held that defendant's willful blindness was sufficient to satisfy these knowledge requirements.

The Federal Circuit squarely addressed the issue of inducement to infringe in Akamai v. Limelight, 629 F.3d 1311 (Fed. Cir. 2010). In Akamai, the district court held that the patent was not invalid. Based on the jury's verdict, it found direct infringement and inducement to infringe. On appeal, a panel of the Federal Circuit reversed, holding that inducement to infringe, nonetheless, requires direct infringement by someone. Further, active inducement requires a substantial relationship between the alleged inducer and the direct infringer, akin to an agency relationship. The court, sitting en banc, vacated the panel's decision, holding that such a rigorous requirement for inducement liability would create a substantial loophole, allowing alleged infringers to escape liability.

The Supreme Court reversed, holding that the en banc Federal Circuit had imposed too loose a requirement. The court reaffirmed, as it had stated in Global-Tech, that inducement requires both knowledge of the patent and knowledge that the acts alleged to constitute inducement were known by the alleged inducer to infringe the patent. Thus, the district court's judgment based on inducement could not stand and the Supreme Court remanded the case to the Federal Circuit with specific instructions to consider whether that portion of the jury's verdict based on inducement could be supported as direct infringement.

On remand, however, the panel did not follow the Supreme Court's instructions. An en banc Federal Circuit vacated the panel's decision and analyzed the alleged inducement under principles of direct infringement. The en banc court found that liability for direct infringement can be found in two circumstances. First, where the alleged inducer directs or controls the activities of the direct infringer, they can be held liable for direct infringement. Second, where the parties are engaged in a joint enterprise, that directly infringes, they can also be found for direct infringement. Applying these standards to the facts in Akamai, the court reinstated the jury's verdict based on direct infringement because Limelight had instructed users to complete all of the infringing steps, resulting in direction or control over the direct infringing activities.

In Commil v. Cisco Systems, 135 S.Ct. 1920 (2015), the Supreme Court considered whether a good faith belief in the invalidity is sufficient to negate the intent required for inducement to infringe. The Supreme Court noted that inducement to infringe and validity are separate issues. Belief in invalidity cannot negate Section 271(b)'s scienter requirement to "actively induce infringement."

Although there can be no liability for infringing an invalid patent, the court declined to create a defense to inducement based on a belief of invalidity. It noted specifically that accused infringers have several tools available to resolve the validity of a patent: ex parte re-examination, post-grant review and declaratory judgment.

Remedies

Fifth, there have also been substantial recent developments regarding remedies. In Lucent v. Gateway, 580 F.3d 1301 (2009) and i4i v. Microsoft Corp., 598 F.3d 831 (Fed. Cir. 2010), the Federal Circuit addressed whether the damages must be attributable, and apportioned to, the value of the patented technology as opposed to other, nonpatentable contributions to the value of the accused product. In both cases, the court held that damages must be based on the value of the patented technology, particularly where the patentee relies on the entire market value of a product that includes unpatentable components.

In Apple Inc. v. Samsung Electronics Co. Ltd. II, 695 F.3d 1370 (Fed. Cir. 2012), the Federal Circuit reviewed the district court's grant of a preliminary injunction. The Federal Circuit vacated and remanded, holding that there must be a "causal nexus" between the alleged irreparable harm and the patented technology. As the district court's findings did not sufficiently identify this causal nexus, the court vacated the preliminary injunction.

The Apple case returned to the Federal Circuit court earlier this year in Apple v. Samsung III, 786 F.3d 983 (Fed. Cir 2015), reviewing the district court's grant of a permanent injunction. In Apple v. Samsung III, the Federal Circuit affirmed the district court's grant of a permanent injunction and appears to loosen somewhat the very requirements for a causal nexus that it imposed in Apple v. Samsung II.

For years, district courts have been influenced by the view that there is little they can do to control bad behavior or frivolous litigation. For a district court to impose attorney's fees, it needed to make specific factual findings that were then subject to substantial scrutiny on appeal. Many district courts simply threw up their hands.

Following the Supreme Court's decisions in Octane Fitness v. Icon Health & Fitness Inc., 134 S.Ct. 1749 (2014), and Highmark v. Allcare Health Management System Inc., 134 S.Ct. 1744 (2014), this situation has changed dramatically. Octane holds that an exceptional case in which attorneys' fees may be imposed is simply one that stands out from other cases. And, Highmark requires that the district court's factual findings on this issue be reviewed only for abuse of discretion.

In the one year preceding the Octane and Highmark decisions, about 46 motions for attorneys' fees were filed. Only six were granted, or 13 percent. In the one year following the Octane Fitness and Highmark decisions, 85 motions for attorneys' fees were filed, of which 31 were granted, or 36 percent, a threefold increase. But the Octane Fitness and Highmark decisions are also an object lesson in being careful what you wish for. A close review of the data reveals that, although defendants are being awarded attorneys' fee awards at a rate higher than they were before Octane Fitness, prevailing patentees are being awarded attorney's fee awards at an even higher rate.

Conclusion

The last three years have seen substantial developments in how patent infringement cases are tried. Effective representation requires substantial preparation, and substantial awareness of recent developments in the law. Many of these recent developments provide greater clarity. And, whether you believe they are favorable or unfavorable, greater clarity enhances the value of the patent system for all concerned.