Study Over Impacts of Erroneous Litigation Vs. Settling Published

Last month, the Journal of Empirical Legal Studies issued a press release over a study that suggested that a majority of plaintiffs making the wrong decision to go to trial ended up with a verdict that was less money than the settlement offer. You can read previous coverage by the 271 Blog on this topic here.

Following the press release, the Journal has now published the article, and it can be read/downloaded for free here.

Most Litigious NPE's of All Time

Joff Wild over at the IAM Blog recently chatted with Dan McCurdy, chairman of PatentFreedom and CEO of Allied Security Trust, who is issuing a list of the most litigious non-practicing entities (aka "patent trolls") for the next issue of IAM Magazine.

Who are the most trigger-happy NPE patentees? According to McCurdy the most active companies in the U.S. are:

(1) Acacia Technologies (link) - 308 cases total, 239 cases since 2003;

(2) Rates Technology Inc. - 130 cases total, but only 38 cases since 2002;

(3) Millennium IP (link) - 99 cases total, 90 cases since 2003;

(4) Cygnus Telecommunications Technology - 69 cases total, 31 cases since 2003;

(5) General Patent Corp International (link) - 66 cases total, 36 cases since
2003;

(6) Plutus IP (link) - 59 cases total (all of those filed since 2003);

(7) Papst Licensing GmbH - 59 cases total, 31 cases since 2003;

(8) F&G Research - 56 cases total, 51 cases since 2003;

(9) Ronald A Katz Technology Licensing (link) - 54 cases total, 48 cases since 2003;

(10) Catch Curve (link) - 53 cases total, 36 cases since 2003.

Favorite NPE jurisdictions include:

1) E.D. Texas (surprise!)

2) N.D. California

3) C.D. California

4) S.D. New York

5) N.D. Illinois

Also, the research found that, for the 2007 year, 16.6% of all U.S. patent litigation involved NPEs. In 1997, the figure had stood at 2.4%.

See Joff Wild "Acacia tops troll litigaition league" (link)

Beating NPE Patent Holders At Their Own Game

Electronics Design, Strategy, News (EDN) magazine published an article yesterday, titled "If You Can't Beat Patent Trolls, Join Them," which covers the latest in the manufacturers-vs.-NPE's battles:

Stuck in apparent stalemate on the legislative side, large companies have formed two new organizations—Allied Security Trust (AST) and PatentFreedom LLC—that use market forces rather than laws to ward off trolls. Both entities emerged from discussions among large companies and IP experts, particularly at ThinkFire, an intellectual property advisory firm that counts Hewlett-Packard and Cisco Systems among its clients. Those two companies as well as others formed AST last year.

* * *

AST, a Delaware statutory trust, was launched in March 2007, but just came out of stealth mode in July . . . The trust buys patents on the open market, grants licenses to its members, and then sells the patents—with those licenses attached—back into the market.

* * *

PatentFreedom, a limited liability company, is a subscription service that provides detailed information on NPEs. As McCurdy sees it, operating companies are at a disadvantage because of the secretive nature of trolls. While NPEs can gather all sorts of information about the large well-known public companies that are their targets, the targets often have very little information on the NPEs

PatentFreedom’s goal is to correct this “asymmetry of information,” said McCurdy. The company had a dozen subscribers as of August and McCurdy expects that number to triple by the end of the year. Annual subscriptions range from $50,000 to $75,000 a year, a drop in the bucket for operating companies. The company also has a lower cost “pay-as-you-go” model for those companies that aren’t frequently targeted by NPEs.

PatentFreedom has identified more than 125 entities with some 800 subsidiaries holding more than 9,000 patents. “And we are confident that there are more than 20,000 US patent families now owned by trolls,” said McCurdy. “We just haven’t found them all yet.”

The article also included this little tidbit:

[N]ot all large companies think patent trolls are threats . . . It simply depends on a given company’s business strategy . . . In fact, some large operating companies even finance trolls and/or use trolls to their own advantage, according to Steve Hoffman, CEO of ThinkFire. Although he won’t name any names, he said he knows of some operating companies that sell their patents to trolls so the trolls can do the dirty work—asserting the patents against competitors without the operating company being involved.

Read the article here (link).

Light Reading For Labor Day: 2007 Annual US Court Report

When you're not preoccupied wiping BBQ sauce from your hands (and children's faces) this weekend, the Statistics Division for the Administrative Office of U.S. Courts released its annual report (all 416 pages) on "Judicial Business of the United States Courts."

Some interesting findings:

• After rising 14 percent in 2006, filings in the Federal Circuit fell 13 percent in 2007 (down 227 appeals) to 1,545, almost the same as total filings in 2003. The decreases appear to be related primarily to reductions in non-patent appeals (e.g., Merit System Protection Board, CAVC, etc.).

• As of September 30, 2007, 34 cases appealed from the USPTO were pending at the CAFC, as compared to 51 cases pending the year before.

• The Eastern District of Texas received more than 250 cases related to patents and reported higher filings of contract cases and prisoner petitions.

• In the district courts, 2,896 patent cases were launched in 2007, which is a slight bump (2.3%) from the 2,830 cases filed in 2006. To date, the biggest year for patent cases was 2004, where 3,075 cases were filed.

• Pendency of patent cases appears to be up: 353 patent cases were pending 3 years or more in 2006, as compared to 408 cases in 2007.

What was somewhat surprising was that, in general, little has changed in terms of the raw number of cases filed, terminated, and pending.


Read/download the entire report here (link)

See AmLaw Daily "Federal Court Statistics for 2007 Suggest Civil Courts Functioning As Expected" (link)

Pending Study Suggests Plaintiffs Should Settle, Rather Than Litigate

While it isn't patent-specific, a somewhat controversial study will be published in the Journal of Empirical Legal Studies that looked at 2,054 cases that went to trial from 2002 to 2005 to see if parties are better off settling rather than going to trial.

Of course, one of the problems with such a study is that you can only make one-way determinations when evaluating litigation decisions. In other words, the only useful data would be refused settlement offers (that aren't sealed) compared to related jury verdicts. Nevertheless, some potentially interesting findings were made:

Generally, defendants were "wrong to go to trial" less often than plaintiffs - for defendants, the choice to litigate was wrong in 24 percent of cases, while plaintiffs were wrong in 61 percent of cases. In just 15 percent of cases, both sides were right to go to trial.

However, while defendants were wrong less often, the price for being wrong was substantially greater - getting it wrong cost plaintiffs about $43,000. For defendants, the cost was $1.1 million.

[M]ost of the plaintiffs who decided to pass up a settlement offer and went to trial ended up getting less money than if they had taken that offer. “The lesson for plaintiffs is, in the vast majority of cases, they are perceiving the defendant’s offer to be half a loaf when in fact it is an entire loaf or more,” said Randall L. Kiser, a co-author of the study and principal analyst at DecisionSet, a consulting firm that advises clients on litigation decisions.

As part of the study, which is the biggest of its kind to date, the authors surveyed trial outcomes over 40 years until 2004. They found that over time, poor decisions to go to trial have actually become more frequent.

The study has attracted the attention of the New York Time, that wrote in a recent article:

[T]he study tried to account for that possibility and found that factors like the years of experience, rank of a lawyer’s law school and the size of a law firm were less helpful in predicting the decision to go to trial. More significant was the type of case.

For example, poor decisions by plaintiffs to go to trial “are associated with cases in which contingency fee arrangements are common,” according to the report. “On the defense side, high error rates are noted in cases where insurance coverage is generally unavailable.”

The findings are consistent with research on human behavior and responses to risk,
said Martin A. Asher, an economist at the University of Pennsylvania and a co-author. For example, psychologists have found that people are more averse to taking a risk when they are expecting to gain something, and more willing to take a risk when they have something to lose.

“If you approach a class of students and say, I’ll either write you a check for $200, or we can flip a coin and I will pay you nothing or $500,” most students will take the $200 rather than risk getting nothing, Mr. Asher said.

But reverse the situation, so that students have to write the check, and they will choose to flip the coin, risking a bigger loss because they hope to pay nothing at all, he continued. “They’ll take the gamble.”

Read NYT: "Study Finds Settling Is Better Than Going to Trial" (link) (graphic)

See ABA Journal: "Most Plaintiffs Who Reject Settlement Offers Do Worse at Trial" (link)

CAFC Finds Infringement Under Doctrine of Equivalents, but Limits Injunctive Relief

Voda v. Cordis Corp., 07-1297, August 18, 2008

After a jury trial, the district court found that Cordis infringed Voda's patent related to cardiac guide catheters. On appeal, Cordin argued, among other things, that the district court erred in finding infringement under the doctrine of equivalents (DOE). Voda appealed the district court's denial of a permanent injunction.

For the DOE, the CAFC reiterated that two tests for equivalence are used:

This court applies two articulations of the test for equivalence. See Warner-Jenkinson, 520 U.S. at 40 (explaining that different phrasings of the test for equivalence may be "more suitable to different cases, depending on their particular facts"). Under the insubstantial differences test, "[a]n element in the accused device is equivalent to a claim limitation if the only differences between the two are insubstantial." Honeywell Int’l Inc. v. Hamilton Sundstrand Corp., 370 F.3d 1131, 1139 (Fed. Cir 2004). Alternatively, under the function-way-result test, an element in the accused device is equivalent to a claim limitation if it "performs substantially the same function in substantially the same way to obtain substantially the same result." Schoell v. Regal Marine Indus., Inc., 247 F.3d 1202, 1209-10 (Fed. Cir. 2001).

Cordis took issue with a claim term that recited "a first substantially straight leg" and "a second substantially straight leg." According to Cordis, their curved catheter did not meet this limitation in certain claims. The CAFC disagreed:

[W]e conclude that Voda introduced substantial evidence establishing that the redesigned curve portion of the XB catheter meets the straight and substantially straight limitations under the doctrine of equivalents. One of Voda’s experts testified that the difference in shape between the redesigned curve portion and a straight portion was so insubstantial that cardiologists would have difficulty distinguishing the two during use. There was also testimony that the redesigned curve portion performed the same function as a straight portion, in the same way, to achieve the same result.

On the denial of a permanent injunction, Vordis, who is an individual inventor, argued that irreparable harm would come to his exclusive licensee. However, Vordis did not argue that he himself would suffer the same injury. The CAFC found this fatal to his argument:

We disagree with Voda that the denial of a permanent injunction in this case conflicts with eBay. The Supreme Court held only that patent owners that license their patents rather than practice them "may be able to satisfy the traditional four-factor test" for a permanent injunction. Id. (emphasis added). Nothing in eBay eliminates the requirement that the party seeking a permanent injunction must show that "it has suffered an irreparable injury." Id. (emphasis added). Moreover, we conclude that the district court did not clearly err in finding that Voda failed to show that Cordis’s infringement caused him irreparable injury. In addition, we find that the district court did not clearly err or abuse its discretion in finding that monetary damages were adequate to compensate Voda. Accordingly, we affirm the district court’s denial of Voda’s request for a permanent injunction.

BMC/Muniauction Decisions Sink Global Patent Holdings Joint Infringement Claim

Global Patent Holdings, LLC v. Panthers BRHC LLC, No. 9:08-cv-80013-KAM, August 12, 2008

Global Patent Holdings (GPH) sued Panthers for infringing U.S. Patent Number 5,253,341, known as the “Remote Query Communication System” patent (also known as the "JPEG patent"). In its complaint, GPH alleged that infringement takes place through the joint action of both Defendant and the website user, because Defendant’s website “controls and directs the performance of each of the method steps of claim 17 which are not performed” by Defendant itself.

The Panthers moved to dismiss the complaint as insufficient to state a claim for direct
infringement under FRCP 12(b)(6). Judge Marra granted the motion.

[I]t appears that the level of “direction or control” the Federal Circuit intended was not mere guidance or instruction in how to conduct some of the steps of the method patent. Instead, the court indicates that the third party must perform the steps of the patented process by virtue of a contractual obligation or other relationship that gives rise to vicarious liability in order for a court to find “direction or control.” Without this kind of relationship, the Court does not believe that a finding of “joint infringement” is warranted under BMC Resources.

The parties agree that the ‘341 patent requires two individuals or entities to complete all of the method’s steps (at least in terms of Defendant’s alleged infringement) – a remote computer user, and the website server. Further, at oral argument, Plaintiff conceded that the patented method does not begin until a computer user visits Defendant’s website. If no person ever visited Defendant’s website, then Plaintiff’s patent would never be infringed. The initial step of the ‘341 patent calls for action on the part of the remote computer user. Plaintiff claims that this action is “controlled” by Defendant because Defendant puts Javascript programs on the remote user’s computer to allow the process to begin. Nevertheless, the Court does not believe this “control” is sufficient “direction or control” over the remote computer user. Plaintiff has, in no way, alleged that remote users are contractually bound to visit the website, it has not alleged that the remote users are Defendant’s agents who visit the website within the scope of their agency relationship nor has it alleged any facts which would render Defendant otherwise vicariously liable for the acts of the remote user. Using Plaintiff’s analogy, Defendant may give home users the keys to the truck, but home users have no obligation to use those keys to start the truck and drive away.

In this case, the patented process cannot start until the remote user visits Defendant’s website. Plaintiff has not alleged that these individuals visit Defendant’s website under Defendant’s “direction or control.” Therefore, the Court cannot conclude that Defendant and the remote users are “joint infringers” under BMC Resources. Since Plaintiff has not alleged sufficiently that Defendant is a joint infringer, and Plaintiff has not alleged that Defendant carries out all the steps of the patented method, Plaintiff’s claim for direct patent infringement must be dismissed as inadequate.

Read/download the opinion here (link)


Hal Wegner has also just circulated a new paper addressing this issue titled "E-Commerce Claims: The Single Actor Direct Infringer." In the paper, Wegner states:

In view of Muniauction, recently granted patents with claims that do not have a single actor direct infringer should be resubmitted for reissue to fix the problem before expiration of the two year broadening deadline for a reissue and, of course, pending claims should be carefully considered for amendment.

Download Wegner's paper, along with a copy of IPO's amicus brief for Muniauction here (link)

W.D. Wis.: All Instances of Materiality Should Be Argued for Inequitable Conduct

Silicon Graphics v. ATI Technologies, Inc., W.D. Wis., 06-cv-611-bbc (August 1, 2008)

Silicon Graphics (SG) sued ATI for infringement of 3 patents. ATI counterclaimed that the patents were invalid and unenforceable. In pretrial rulings, Judge Crabb found no basis for infringement on 2 of the patents, and SG conceded at the final pretrial conference that the remaining patent was not infringed and agreed to dismiss the claims with prejudice. ATI pressed forward with the claims of invalidity and unenforceability, but was unsuccessful at trial.

As part of its inequitable conduct argument, ATI argued that a prior art reference ("the Baum patent") anticipated the claims of one of the patents-in-suit. The jury found that the Baum patent did not anticipate, and Judge Crabb dismissed the inequitable conduct case. ATI moved for a new trial, arguing that the issue the court needed to reach was not whether the Baum patent anticipated, which is what the jury decided, but rather whether the Baum patent
was material to the patent office. Judge Crabb denied the motion:

Defendants are correct when they argue that anticipation and materiality can be two different matters. The flaw in their argument is that they never advanced any other theory of materiality. Instead, in preparation for the inequitable conduct phase of trial, they talked of materiality only in terms of anticipation by the Baum patent. See Defendants’ Proposed Findings of Fact for Potential Non-Jury Issues, dkt. #459, at 46 (“The [Baum] patent anticipates at least claims 17 and 22 of the ‘327 patent”; “Because the [Baum] patent anticipates ‘327 patent claims, the [Baum] patent and application ‘establishes by itself or in combination with other information, a prima facie case of unpatentability of a claim,’ and is material art under 37 C.F.R. § 1.56.”). Once the jury determined that the Baum patent did not anticipate, defendants’ case of inequitable conduct could not go forward. Although defendants worked hard to convince the court that they should be allowed to argue additional reasons for a finding of inequitable conduct, their efforts failed. It was too late for them to go forward on a wholly new theory they had never disclosed to plaintiff.

Defendants suggest that their proposed finding of fact, #450, dkt. #459 at 65, was sufficient to give notice of their theory of inequitable conduct. A reading of the proposed finding dispenses with that argument. In full, the proposal reads: “The ‘450 patent and application are highly material prior art because they invalidate ‘327 patent claims and/or present a prima facie case of unpatentability.” This statement falls far short of being a sufficient factual proposal on which to base an inequitable conduct claim. Defendants do not say what other showing of materiality they could have made; if they are contending that they could have shown that Baum made the ‘327 patent obvious, they never raised this point at trial. I conclude that it was not error to dismiss defendants’ inequitable conduct claim without a trial.

Not surprisingly, each side requested attorney fees. Both sides were denied:

[35 U.S.C. § 285 and 28 U.S.C. § 1927] are aimed at exceptional cases in which the parties (or counsel, in the case of § 1927) have acted so outrageously as to be subject to sanctions. This is not one of those cases. Both sides prosecuted their cases vigorously and tenaciously. Both sides advanced and maintained positions that in hindsight they may regret. That is not exceptional or even unusual in litigation of this nature . . . This case would have been easier for counsel and the court to deal with had counsel for both sides confined their claims to those for which they had a stronger foundation, but determining which claims are the stronger ones is always easier at the end of the case than it is at the outset . . . Despite the more than 100 pages that the parties have devoted to the issue of defendants’ entitlement to fees and costs and the amount of such fees and costs, the resolution of the matter is straightforward. Fees and costs are awarded only to prevailing parties; in this suit neither side prevailed.

Read/download the opinion here (link).

Patentee's Litigation Deemed "A Collosal Waste of Time"; Sanctions Granted

Advanced Magnetic Closures, Inc. v. Rome Fastener Corp., S.D.N.Y. (98 Civ. 7766), July 17, 2008

Adbanced Magnetic Closures (AMC) sued Rome Fastener ("Romag") in 1998 for infringing a patent on a magnetic snap fasteners commonly used in the fashion industry to secure the flaps on ladies’ handbags. Romag countered that (1) they did not infringe, and (2) they already held an earlier patent that covered the same concept. Additionally, Romag charged AMC with inequitable conduct, alleging that the inventor listed on AMC's patent (Bauer) was not the true inventor, and that material information was withheld from the PTO during prosecution. Furthermore, Romag alleged that AMC engaged in various litigation misconduct that warranted sanctions.

After viewing the record, the district court found inequitable conduct and misconduct throughout the litigation. Accordingly, the court unleashed its fury on AMC:

The primary thrust of this litigation was AMC’s claim that Romag had infringed Bauer’s ‘773 Patent—a patent that issued upon inequitable conduct. Thus, every aspect of this litigation that was connected in some way to the validity of the ‘773 Patent—from the fraudulent inventorship claim in the initial application to the use of a knowingly inaccurate expert report—was nothing more than a tissue of lies. Bauer made a strategic business decision to preserve his economic investment in the magnetic snap industry, concealed the true identity of the ‘773 snap inventor, and used AMC to bully the handbag industry with a sham patent. When one of AMC’s targets finally stood up and challenged the bona fides of the ‘773 Patent, AMC stubbornly persisted in litigation for almost ten years, burdening three separate district court judges with complex scientific arguments and concepts. Once engaged, AMC routinely obscured the origins of key documentary evidence and concealed that its expert’s analysis was without foundation. On the eve of trial, AMC was forced to withdraw the expert on whom it unjustifiably and exclusively relied for more than six years, after it became obvious that his opinion controverted both scientific evidence and its key argument at trial. In a brazen demonstration of willfulness, AMC proceeded to trial without an expert, empanelling a jury for three days without even the remotest possibility of success on its infringement claim. In short, AMC’s infringement claim was a colossal waste of time for everyone involved and it would be unfair to burden Romag with the costs of litigating this claim.

See a copy of the opinion here (link)

On a somewhat unrelated, but nevertheless fitting case for the "don't-let-this-happen-to-you-in-litigation" category, see Michael Smith's blog entry on Saffran v. Boston Scientific Corp., 2:05cv657-TJW (E.D. Tex. July 9, 2008), where BSC's motion for JMOL was denied with an exclamation point by Judge Ward, where he stated "[t]he court has never had counsel so recklessly disregard its orders before this trial. The court repeatedly warned BSC against violating its orders, but counsel for BSC paid little, if any, heed to the court’s instructions and warnings." (link)

Rethinking the Role of the ITC In Patent Cases

When Section 337 of the 1930 Trade Act was enacted, its original purpose was to protect US businesses against unfair foreign competition. Coupled with government subsidies, tariffs and seizures, US businesses were provided with potentially potent weapons for stifling foreign encroachment on US business interests. However, with ongoing growth in free trade, protectionist measures such as subsidies and tariffs have fallen into disfavor. IP, on the other hand, has gained popularity as a form of trade regulation.

It is not surprising then, that the ITC has become a successful venue for patent holders who want to block foreign competition through the use of 337 actions. But the court's success has prompted some to question whether the venue is overly protectionist, in violation of international law, and biased in favor of patent plaintiffs.

In a recent paper, Colleen V. Chien, Professor of Law at the Santa Clara University School of Law, published a draft paper titled "Patently Protectionist? An Empirical Analysis of Patent Cases at the International Trade Commission," which looks at these issues. While her findings suggest that the ITC is neither "protectionist" nor "pro-plaintiff", professor Chien thinks that the role of the ITC needs to be changed.

The paper analyzed nationalities of complainants (plaintiffs) and respondents (defendants), and found that instances of "purely domestic" actions against "purely foreign" respondents were quite rare. Instead, it was most likely that a domestic complainant would file actions against a "mixed bag" of domestic and foreign entities:

Section 337 cases have been brought against purely foreign defendants in only a small minority (14%) of recent cases. Complainants initiated investigations against a combination of foreign and domestic defendants more often than they did against just foreign defendants (72% foreign and domestic defendants vs. 14% foreign defendants). Cases were equally likely to be brought against purely domestic defendants and purely foreign ones (15% domestic defendants vs. 14% foreign defendants).

On the other hand, US entities overwhelmingly initiated Section 337 investigations. Domestic complainants brought 79% of the cases in the dataset with only 15% of the cases initiated by foreign complainants. (Table 2) Thus, while purely foreign respondents were uncommon, so were purely foreign complainants. However, the relatively low rate of foreign plaintiffs is not limited to the ITC: 87% of district court patent cases are brought by domestic plaintiffs, and only 13% by foreign plaintiffs, despite roughly equal rates of patenting.

With regard to being "pro-plaintiff" the paper notes that, in 65% of ITC cases, there is a parallel proceeding in the district courts. While "pure" ITC proceedings favor plaintiffs more so than district courts (58% vs. 35%), cases having parallel proceedings drops the gaps considerably (54% vs. 50%).

Also, analysis of the parallel proceedings provided some other interesting statistics. ITC litigants are less inclined to settle: only 70% of district court cases settle, compared to 42% of ITC investigations. Comparing parallel proceedings, the paper found that ITC investigations were nearly six times more likely to be adjudicated (41% adjudication rate) than their district court counterparts (7% adjudication rate).

Nevertheless, there is increasing overlap between ITC proceedings and district court cases. In some cases, litigants use both venues to relitigate the same issues. Accordingly, the paper provides some recommendations for reducing duplication: (1) Reduce overlap between the venues, and (2) Harmonize the venues.

Read/download the paper here (link).

CAFC: Web-Based Implementation Deemed Obvious; Joint Infringement Nixed

Muniauction, Inc. v. Thomson Corp., July 14, 2008 (2007-1485)

After a jury trial, the district court ruled that Thomson wilfully infringed Muniauction's patent related to conducting original issuer auctions of financial instruments. The district court awarded enhanced damages, and entered a permanent injunction against Thomson. Shortly after trial, the Supreme Court issued KSR International Co. v. Teleflex, Inc., however the district court did not modify their finding that Muniauction's patent was not obvious.

While the appeal was pending, the CAFC issued two opinions relevant to this case: (1) In re Seagate (changing the standard of willful infringement from one akin to negligence to that of objective recklessness) and (2) BMC Resources (where steps of a method claim are performed by multiple parties, the entire method must be performed at the control or direction of the alleged direct infringer). Thomson argued that these cases rendered the patent invalid and/or established that Thomson did not infringe as a matter of law.

Obviousness

On the issue of obviousness, the CAFC found that Muniauction's patent was disclosed in the prior art, except that the prior art did not discuss the use of a web browser for performing the claimed features.

The CAFC noted that the patent specification identified the invention as using a "conventional Internet browser" and "conventional web browsing software." Accordingly, the CAFC acknowledged that this terminology "denotes a reference to web browsers in existence at the time of the alleged invention."

The CAFC also cited various patent and prior art publications that generally disclosed the use of Internet browsers for electronic auctions, and thus, indicated the obviousness of the claimed combination. Furthermore, citing Leapfrog Enterprises, the CAFC found that "adapting existing electronic processes to incorporate modern internet and web browser technology was similarly commonplace at the time the [] patent application was filed."

On secondary considerations, the CAFC noted that "[a] nexus between the merits of the claimed invention and evidence of secondary considerations is required in order for the evidence to be given substantial weight in an obviousness decision." Finding that Muniauction's evidence of secondary considerations lacked the requisite nexus to the claims, the CAFC ruled the patent was obvious as a matter of law.

Noninfringement

The only theory of infringement put forward by Muniauction was that of so-called joint infringement, which was addressed in BMC Resources v. Paymentech:

[W]here the actions of multiple parties combine to perform every step of a claimed method, the claim is directly infringed only if one party exercises "control or direction" over the entire process such that every step is attributable to the controlling party, i.e., the "mastermind." . . . At the other end of this multi-party spectrum, mere "arms-length cooperation" will not give rise to direct infringement by any party.

Muniauction's patent recited the feature of "inputting data associated with at least one bid for at least one fixed income financial instrument into said bidder’s computer via said input device." Since Thomson did not "input" data, nor "control" or "direct" users to perform the acts, the CAFC found there to be no infringement as well:

Under BMC Resources, the control or direction standard is satisfied in situations where the law would traditionally hold the accused direct infringer vicariously liable for the acts committed by another party that are required to complete performance of a claimed method . . . In this case, Thomson neither performed every step of the claimed methods nor had another party perform steps on its behalf, and Muniauction has identified no legal theory under which Thomson might be vicariously liable for the actions of the bidders. Therefore, Thomson does not infringe the asserted claims as a matter of law.

REVERSED-IN-PART AND VACATED-IN-PART

From the footnotes:

Footnote 3:

Because the ’099 patent is itself silent regarding how to actually implement the methods claimed therein with a web browser, Muniauction’s argument therefore might suggest that the claims present an enablement issue, rather than support a
conclusion of nonobviousness. See, e.g., Sitrick v. Dreamworks, LLC, 516 F.3d 993, 999 (Fed. Cir. 2008) ("The ‘enablement requirement is satisfied when one skilled in the art, after reading the specification, could practice the claimed invention without undue experimentation.’")

Footnote 4:

We further note that our conclusion as to the nexus between this award and the claims is consistent with the long-established rule that "[c]laims which are broad enough to read on obvious subject matter are unpatentable even though they also read on nonobvious subject matter." In re Lintner, 458 F.2d 1013, 1007 (CCPA 1972) (citing In re Mraz, 455 F.2d 1069, 1073 (CCPA 1972)).

C.D. Cal.: Patentee Must Make Affirmative Act For DJ Jurisdiction

Panavise Products, Inc. v. National Products, Inc., CV 08-1300 ABC (May 30, 2008)

Panavise was releasing a product that they feared could infringe National Products (NP) patent. Viewing the litigation history of the patent, Panavise saw that they had sued other unrelated parties in the past (6 suits involving 12 entities), and made public statements declaring that the patent was "essential" to the technological area. Also, during a trade show in which the product was displayed, Panavise learned that NP personnel were also in attendance.

Accordingly, Panavise filed for a DJ action. NP moved to dismiss, claiming that (a) they never communicated with Panavise regarding the patent, and (b) they never saw the product, or even learned of it, until the DJ action. The district court agreed with NP and dismissed the action:

[I]t is clear that no case or controversy can exist in a patent action for declaratory relief in the absence of an act by the defendant. For example, in Sandisk, the court stated that “declaratory judgment jurisdiction generally will not arise merely on the basis that a party learns of the existence of a patent owned by another or even perceives such a patent to pose a risk of infringement, without some affirmative act by the patentee.” Sandisk, 480 F.3d at 1380-1381 (emphasis added). That is exactly the situation here: Plaintiff merely learned that Defendant owns a patent and is concerned that its own device may infringe Defendant’s patent, but Defendant has taken no affirmative act in relation to Plaintiff’s device; indeed, Defendant did not know of Plaintiff’s device and has yet to see it. Sandisk further states that “Article III jurisdiction may be met where the patentee takes a position that puts the declaratory judgment plaintiff in a position of either pursuing arguably illegal behavior or abandoning that which he claims a right to do,” id. (emphasis added), thereby reinforcing the notion that no case or controversy can exist where the defendant has taken no position. It is undisputed that Defendant has taken no position with respect to Plaintiff and/or the 811 series device.

That Defendant has sued other unrelated persons for infringement of the ‘420 patent does not constitute action toward this plaintiff and the 811 series device, and therefore does not contribute to the existence of a case or controversy between these parties. Without Defendant even knowing about Plaintiff’s device, it is not apparent that the parties have “adverse legal interest[s]” and that the dispute is “definite and concrete.” Rather, Plaintiff is seeking what MedImmune forbids: “an opinion advising what the law would be upon a hypothetical state of facts.” MedImmune, 127 S.Ct. at 77. Indeed, the cases Plaintiff cites in support of its position all involve a defendant communicating with the plaintiff about plaintiff’s device. Plaintiff has directed the Court to no case in which a case or controversy was found in the absence of any act by the defendant directed toward the plaintiff and/or plaintiff’s device.

Download the opinion here (link)

Hat tip: Patent Appeal Tracer

Company Files Defamation Action Against Patent Holding Company

Cognex Corporation v. VCode Holdings, Inc. (a.k.a. Acacia), No. 06-cv-01040, (D. Minn.)


Cognex has established a reputation for aggressively defending itself against patent infringement from holding companies. Back in 2005, the company successfully defended itself against Lemelson and invalidated 14 patents asserted in the action.

Recently, Cognex has been involved in a battle-royale with Acacia subsidiaries VCode Holdings and VData LLC in the district of Minnesota. In May, Judge Joan N. Ericksen held on Summary Judgment that one of the patents-in-suit ("the '524 patent"), claiming a system for capturing and reading 2D symbology codes, was both invalid and unenforceable due to inequitable conduct by the defendants during the procurement of the patent (read the order here).

Interestingly, Cognex asserted that Acacia's actions in the case were a violation of the Minnesota Uniform Deceptive Trade Practices Act, and that certain Acacia statements made to Cognex's customers were defamatory. While the district court dismissed the deceptive trade practices claim, the court denied Acacia's motion for summary judgment on the issue of defamation.

Recently Cognex filed a second amended complaint and a motion for summary judgment, claiming that Acacia published false and defamatory statements:

24. Upon information and belief, since the filing of Cognex’s original Complaint in this action, an authorized representative of Acacia has informed at least two alleged infringers of the ‘524 patent, who have raised this action as a reason to decline or defer taking a license under the ‘524 patent, that Cognex, as recently as last summer, offered to buy the ‘524 patent (along with a related patent, U.S. Patent No. 4,924,078 (the "’078 patent")) for an eight figure sum.

25. Specifically, in an e-mail dated April 27, 2006 to a Proctor and Gamble representative, the Acacia representative, Tisha DeRiamo, stated:

Your information regarding Cognex is very interesting. I hope their attorney told you that as recently as last summer, Cognex attempted to buy the ’078 and ’524 patents from Veritec for an eight-figure purchase price. In other words, they saw value in having the patents back then. But now, as Veritec has emerged out of bankruptcy and is able to enforce its rights regarding the patents, Cognex alleges that the patents are invalid. It’s incongruous. (emphasis in original).

26. Upon information and belief, Ms. DeRiamo also stated to at least one of these alleged infringers, Allison Payment Systems, a customer of Cognex for its data matrix symbol reader products, that Veritec was in possession of a letter of intent evidencing Cognex’s alleged offer to purchase the ‘524 and ‘078 patents for an eight figure sum.

27. These statements made by Ms. DeRiamo are false. Cognex never offered to buy the ‘524 and ‘078 patents for any sum, let alone one with eight figures.

The move by Cognex is also noteworthy in light of the SCOTUS decision in Quanta v. LG Electronics - since licenses "purchased" from patentees extinguish certain rights, patent holders will be restricted in selling a company a license, and suing the company's customers (see Law.com article here).

Hat tip: Groklaw (read more details here)

Read Cognex's 2nd Amended Complaint here

Motion for Summary Judgment (link)

Acacia's Memorandum in Opposition (link)

Study: 53% of Pharma Patents Approach Expiration Before Litigation Strategies are Implemented

A new study developed by market intelligence firm Cutting Edge Information reveals that the majority of pharmaceutical companies are waiting until their patents on drugs are nearly run out before they start to work on patent litigation strategies.

According to the study:

• 66% do not begin counter-generics planning until at least two years after product launch.

• Some companies do consider generics problems relatively early – 23% of surveyed companies conduct generics planning while drugs are still in clinical trials, and another 11% initiate counter generics strategy during launch.

• A majority of responding companies report first considering generics within four years of patent expiration (33% of companies reported to looking into litigation as a strategy while two to four years remain on the patent. Another 13% of companies began looking into litigation to protect their drugs while four to six years remained on the patent).

Download a summary of the 153-page report here (free registration required).

Purchase a copy of the report ($7695.00) here.

Danforth: FTC Patent Reform Is Needed

Last month, John Danforth, former general counsel of Rambus and legal adviser published an article in the Legal Times that was highly critical of the FTC's "much ballyhooed but misguided antitrust case against Rambus Inc." that was recently overturned by the DC Circuit (see earlier 271 coverage here).

Last week, the FTC filed a Petition for Rehearing En Banc seeking reversal of the DC Circuit opinion that rejected antitrust sanctions against Rambus for its alleged non-disclosures in a standard setting organization (“SSO”) called ‘JEDEC.’ This move by the FTC set off another response from Danforth who states that the petition "clearly and inherently evidences the need for reform," citing four ways in which the FTC is overstepping its bounds against Rambus in the petition:

(1) The FTC continues to “aggressively” overstate its case,
(2) The FTC takes an aggressive approach to other parts of the record in the case,
(3) The FTC’s en banc petition is merely the latest example of the FTC’s inability to acknowledge that its theory against Rambus did not hold up -- and has been overwhelmed by new developments and more recently discovered facts, and
(4) The FTC has added the potential for yet further delay in its six year old, now-very-stale case.

Notes Danforth:

Litigators litigate. Zealotry is often regarded as a virtue. But when, as with the FTC, the prosecutor and the judge are one and the same, restraint and reassessment should be built into the process. This is even more true when, as in the Rambus matter, the FTC has interests in a case relating to its budget and the scope of its own agency mission. There needs to be accountability and some level of detachment. There cannot be reliance on the donated legal work of self-interested third parties. There need to be occasional checks and balances on cases as they progress through discovery. In the end, there ought to be a policy – or perhaps a new law passed by Congress -- that important FTC antitrust cases be litigated in Federal courts, just as important DOJ antitrust cases already are.

Read Danforth's draft paper here.

Read the FTC's petition here.

See HP, Cisco & Sun Microsystems Motion for Leave and Invitation to file Amicus Curiae Brief In Support of the FTC (link).

See also S.M. Oliva's recently-filed Amicus brief opposing Rehearing En Banc (link). From the brief:

The FTC is not protecting the competitive process, but rather forcing the market to reach particular outcomes, namely the avoidance of patented technologies by SSOs or, alternatively, licensing of patents on terms that the Commission deems “reasonable.” The “but for” analysis that the Commission relies upon for its remedy is nothing more than an attempt to re-write market outcomes to satisfy the personal preferences of the commissioners. This far exceeds the constitutionally permissible scope of Commission conduct.

Wednesday Shorts: Patent Tools, Enforcement Company Updates, and More

More Patent Tools (Part 1): Rolf Claessen, who is a partner at the German firm von Kreisler Selting Werner, and proprietor of the wonderful IPNewsflash website, has added a patent PDF download tool covering numerous countries. To try it out, click here.

More Patent Tools (Part 2): A new website called PatentRetriever has also issued a PDF download tool that allows "download of US, European and PCT patent applications as PDF fileswithout annoying user registration or logos inserted on pages." To try it out, click here.

Patent Enforcement Company Update #1: from the Politico.com news site:

Last week, Rep. Pete Sessions (R-Texas) and two other Texans on the House Financial Services Committee asked the Government Accountability Office to investigate the company “and the potential impact of DataTreasury Corp.’s litigation” against nearly 60 U.S. banks.

The three members requested that the agency check into the backgrounds of DataTreasury’s founders, investors, lawyers and patents. In the past, financial services lobbyists have raised questions about the company executives backgrounds and the fees paid to the company’s two law firms: Nix, Patterson and Roach and Provost and Umphrey.

Patent Enforcement Company Update #2: Plutus IP is a notorious patent holding company that allegedly has a multitude of affiliate companies formed under its umbrella (e.g., Taurus IP, Gemini IP, Caelum IP, Phoenix IP, Orion IP, Constellation IP). Currently, DaimlerChrysler is seeking up to $4 million in legal fees against Plutus IP in the Western District of Wisconsin after prevailing on a jury verdict for breach of contract. Apparently, Daimler previously paid a $2.3 million dollar settlement on a portfolio of patents in a broadly construed "no-more-lawsuits" arrangement with Plutus. After patents were shuffled among the affiliates, Daimler was sued not once, but three more times by affiliates. The Wisconsin jury ruled that this was a no-no. Read the complete story at The Prior Art.

Patent Troll Tracker Litigation: Joe Mullin has the latest - click here.

Patent Enforcement Companies Keep Trying to Skirt eBay v. MercExchange

Say what you will about patent enforcement companies (i.e., "patent trolls", "non-practicing entities", etc.), but they certainly aren't short on creative ideas when it comes to getting new angles on patent litigation strategy. Since the Supreme Court's decision in eBay v. MercExchange, patent holding companies have been looking for ways to tip the scales of the four-factor injunction test in their favor.

In mid-2007, the E.D. Texas heard CSIRO v. Buffalo Technology, Inc., where the court recognized "research institutions" as participants in the research group market, thus qualifying them for injunctive relief. Accordingly, companies like Wi-LAN began forming "research and development teams" that complemented their patent holdings in an effort to get move favorable treatment in the jurisdiction on injunctions. According to a CNNMoney article:

In addition to providing Wi-LAN with future patents . . . the firm's research
and development activities and university funding may also help the firm obtain
permanent injunctions in litigation, as the courts could recognize the firm's
status as a research and development organization (see earlier 271 Blog coverage here).

Rembrandt IP has taken a few creative steps of their own. When litigating contact lens-related patents against CIBA Vision and Bausch & Lomb (who competes with CIBA), Rembrandt allegedly tendered to Bausch & Lomb (B&L) a unique settlement offer: purchase rights in the patent so that Rembrandt keeps monetary damages, but B&L obtains the right to seek an injunction against CIBA if Rembrandt prevails at trial. In earlier coverage from the Troll Tracker Blog (no longer accessible), CIBA noted with the district court that this arrangement would "effectively cause" B&L to switch sides in the case, and "[b]y purporting to transfer the right to seek an injunction to B&L, Rembrandt Vision hopes to improve its chances of obtaining an injunction." While it is unclear whether this strategy will prove successful, it is worth noting that Rambrandt recently obtained a $41 million dollar verdict in the case.

Not sitting still, Rembrandt recently made news again when it was reported that the company teamed with a small Taiwanese cable modem manufacturer to make "Rembrandt" cable modems (branded "Remstream") to complement ongoing patent litigation against a multitude of cable companies. According to a court filing by defendant Comcast, “Rembrandt has endeavored to become a supposed market participant or direct competitor of the MSOs and/or DOCSIS-compliant equipment manufacturers for the sole purpose of seeking injunctive relief and/or lost profits in its infringement suits.” Additional parties have alleged that Rembrandt's “sham” attempts to portray itself as a cable-modem vendor violated antitrust regulations.

See Multichannel News, "Operators, Vendors Accuse Patent Firm Of Modem 'Sham'" (link)

See DowJones Newswire: "New Strategy To Obtain Injunction Alleged In Patent Dispute" (link)

See Forbes, "Patent Payday" (link)