Law360
While all eyes were on the Bilski dispute, the U.S. Court of Appeals for the Federal Circuit was handing down key rulings that will help defendants block false patent marking suits and boot infringement cases out of the Texas rocket docket, among other developments.
The appeals court also issued decisions that signal it will continue to scrutinize damages awards and aims to investigate the standards for proving highly contentious claims that a patent owner intentionally deceived the U.S. Patent and Trademark Office.
Here's a roundup of the top rulings by the Federal Circuit from April to June and their potential implications for intellectual property law:
Pequignot v. Solo Cup Co., case number 09-1547
The Federal Circuit in June held that improperly marking items with expired patents counted as false patent marking, but the standard for proving deceptive intent was "particularly high," such that "a purpose of deceit, rather than simply knowledge that a statement is false, is required."
As a result, qui tam relator Matthew Pequignot was unable to show Solo Cup had the requisite intent to falsely mark its drinking cup lids.
Some lawyers predict the decision is going to deflate the false marking litigation bubble.
“The Federal Circuit has let air out of the balloon for various plaintiffs trying to make quick recoveries on false marking,” said William F. Abrams, co-chair of Bingham McCutchen LLP’s IP practice. “It’s going to make these cases a lot harder to bring and discourage these lawsuits.”
False marking suits against corporations have been on the rise since the Federal Circuit ruled in December in the Forest Group Inc. v. Bon Tool Co. case that false marking could result in a judgment of up to $500 per item marked, instead of per decision to mark.
But Solo Cup was able to fend off the false marking claims by obtaining an opinion of counsel stating that the marking was legal and pointing to evidence that if it moved immediately to stop marking products, it would have been costly and harmful to business, according to Douglas Cawley, a patent litigator at McKool Smith PC.
“The advice of counsel feature will be rare, and we are not likely to see that as a defense in many cases. But it will be very common for businesses to offer evidence that will characterize their conduct as accidental marking, and that they didn’t fix it because of costs and to avoid business disruption,” he said. “If that’s enough, I think this case will substantially quell this cottage industry that has arisen over false marking cases.”
In light of Solo Cup, if defendants can rebut false marking claims based on arguments of cost and convenience, plaintiffs will have to find affirmative proof of an intent to deceive, such as an incriminating e-mail, which is likely to be hard to come by, according to Cawley.
Companies can also protect themselves from claims by marking a product with a statement that it “may be covered” by one or more of the following patents, as long as the item is covered by at least one patent mentioned, according to Russ Hill, a partner at Sheppard Mullin Richter & Hampton LLP.
However, he noted that the ruling will drive the plaintiffs bar to scour the market for products with expired patents.
“If there’s evidence that a company intentionally left on an expired patent when it could have taken the patent off, that’s going to be found to be false marking,” he said.
In re: Zimmer Holdings Inc. et al., case number 10-M938
Trying to crack down on misuse of the U.S. District Court for the Eastern District of Texas, the Federal Circuit concluded that MedIdea LLC’s patent infringement suit against Zimmer Holdings over hip and shoulder replacement products could not stay in the popular plaintiff-friendly forum because MedIdea's connection to the state was “a legal fiction.”
The Federal Circuit in June vacated the district court's denial of Zimmer's motion to transfer and directed it to send the case to the Northern District of Indiana, where Zimmer is headquartered.
Although patent-holding company MedIdea had office space in Texas, the Federal Circuit held that the Eastern District of Texas was convenient only for MedIdea’s litigation counsel, finding that Michigan was where the plaintiff's officers lived and where most of the company's research, development and patent prosecution took place.
“This is a classic case where the plaintiff is attempting to game the system by artificially seeking to establish venue by sharing office space with another of the trial counsel’s clients,” the order said.
Texas courts previously considered a plaintiff with a business in their jurisdiction, even a drop box, to be enough reason for the case to remain on the docket, according to Hill.
“The decision shows the Federal Circuit is cracking down on these hotbeds that are making a business out of attracting patent litigation to a local forum,” he said. “The court found that if a place of business is set up for the purpose of litigation, then it’s really just a fiction.”
While the ruling follows the Federal Circuit’s December 2008 decision in In re: TS Tech USA Corp. and other opinions that have made it easier to move cases out of the Eastern District of Texas, which is one of the most popular venues for patent filings, the decision also applies to jurisdictions across the U.S., according to Jamil N. Alibhai, chair of Munck Carter LLP’s litigation section.
“When defendants can show a case does not have a close enough connection with the venue and there is a more convenient place, such as by offering evidence that documents and witnesses are located somewhere else, the court should transfer. If it doesn’t, the Federal Circuit may transfer,” he said.
Even though the Eastern District of Texas will continue to be an attractive forum for initiating patent litigation, some plaintiffs are going to consider several factors before filing there, according to Daryl L. Joseffer, an appellate partner of King & Spalding LLP.
“Cases are still going to be filed that don’t belong there. It’s still a popular spot, but the Eastern District of Texas’ pace of adjudicating cases is slowing down because so many cases are filed there. And in light of Zimmer, more cases will be transferred elsewhere,” he said.
Wordtech Systems Inc. v. Integrated Networks Solutions Inc. et al., case number 09-1454
The Federal Circuit in June rejected a $250,000 damages award against Integrated and two employees for infringing Wordtech’s patents covering automated duplication of compact discs and cleared the way for Integrated to have a new trial on damages.
The appeals court ruled that the jury’s verdict, which equated to a 26.3 percent royalty on the $950,000 total alleged sales, was not backed up by the evidence. The lump-sum licenses Wordtech presented to justify the lump-sum award were not sufficiently comparable, and the running-royalty licenses indicated much lower royalties ranging from 3 percent to 6 percent, according to the opinion.
“This ruling is significant because of the degree the Federal Circuit dived into the details of license agreements,” Cawley said. “Proving damages by use of comparable license agreements is going to require a meticulous demonstration of why the agreements are comparable to the situation in the lawsuit.”
The Wordtech opinion is in line with the Federal Circuit’s September ruling overturning a $358 million damages award for Alcatel-Lucent, which signaled the court would begin requiring more rigorous economic proof of damages, and a February decision vacating $506,000 in damages awarded to ResQNet.com Inc. because the plaintiff’s expert used licenses with no relationship to the claimed invention, according to Cawley.
“The court is giving more scrutiny for reasonable royalty damages, and this case gives some indication of how specifically the Federal Circuit will get into the details of license agreements. It found that because of meaningful differences in the way the licenses were structured, they didn’t provide a basis for the amount of reasonable royalty,” he said.
However, while many view the Lucent, ResQNet and Wordtech rulings as part of broader efforts by the Federal Circuit to rein in excessive damages awards and require reliable proof, the appeals court clearly had to reverse the awards in those cases, according to a lawyer who asked to remain anonymous.
The licenses in the Lucent and ResQNet cases had no connection to the awards, and the jury in the Wordtech case awarded twice as much as the damages amount sought by the plaintiff, the attorney said.
“It would have been absurd if the Federal Circuit did not reverse the three cases because the plaintiffs had no proof of damages and the awards were ludicrous,” the attorney said. “People are getting a sense that the Federal Circuit is cracking down on damages, but it has only done so in cases that are extreme.”
Therasense Inc. et al. v. Becton Dickinson & Co. et al., case number 08-1511
Looking to revisit the doctrine of inequitable conduct for the first time in decades and clear up increasing confusion over its application, the Federal Circuit in April granted an en banc rehearing to Abbott Laboratories in patent infringement litigation against Becton Dickinson & Co. and Bayer Healthcare LLC over blood glucose test strips.
The appeals court vacated a January decision by an appeals court panel and granted the rehearing to Abbott, which contends that the panel wrongly upheld an inequitable conduct ruling, rendering the company's patent covering disposable blood glucose test strips unenforceable and sowing further discord among the courts.
Specifically, the Federal Circuit asked the parties to address whether the “materiality-intent-balancing framework” for inequitable conduct should be modified or replaced, what constitutes a material misstatement at the USPTO, and when intent to deceive can be inferred from materiality.
“The Federal Circuit is taking the case en banc to clarify or change the standards of what constitutes inequitable conduct or not. The court could dictate incentives and may change litigation strategies,” Joseffer said.
Claims of inequitable conduct are coming up more often in defense of patent litigation and add another dimension of contentiousness to the case because a finding of inequitable conduct can render a patent unenforceable and tarnish the reputation of the patent prosecutor, according to experts.
“When it is increasingly common to allege inequitable conduct by the patentee, it makes litigation all the more unpleasant and uncordial,” Joseffer said. “If the same lawyer bringing the case also prosecuted the patent, and opposing counsel accuses that lawyer of lying to the USPTO and violating ethical obligations, that turns up the heat on the personal relationship between counsel.”
Depending on how the appeals court determines the framework when looking at materiality and intent, a decision could stem the number of inequitable conduct allegations made in patent infringement suits, according to Alibhai.
In the meantime, the appeals court already ruled on two cases during the second quarter of this year that dealt with the inequitable conduct issue.
The Federal Circuit in April upheld that an Avid Identification Systems Corp. patent covering technology for identifying lost pets was unenforceable because Avid’s founder intentionally withheld that he put on a trade show demonstration of the product at issue and owed the USPTO a duty of candor.
The ruling in Avid’s case against rival animal identification chip maker Crystal Import Corp. expands the inequitable conduct doctrine, making the company responsible for not having its executive inform the inventors or counsel about the trade show in light of the event’s materiality to the USPTO, according to Hill.
“Most folks thought that a duty of candor applied to the inventor, the attorney and other people substantially involved in prosecution,” Hill said. “But the Avid case extended the duty of candor to include the president of the company who had put on a trade show and gave a public demonstration of the invention before the application was filed. The court found that he was substantially involved even though he had no knowledge of what’s material.”
The ruling will encourage defendants to broaden discovery by also looking at company executives’ conduct and will drive patent prosecutors to interview more parties to determine the material that needs to be disclosed to the USPTO, Hill said.
In Emcore Corp.’s dispute with Optium Corp., the appeals court in May affirmed that Emcore didn't try to mislead the USPTO when it applied for two patents on fiber-optic technology.
It found that even though the company failed to disclose a material reference to the USPTO, it hadn’t committed inequitable conduct because there was no evidence that it had an intent to deceive.
“Optium clarified that it’s not enough to show information was withheld; it must show deceptive intent,” Alibhai said.
--Additional reporting by Julie Zeveloff and Samuel Howard