The Federal Circuit recently issued a decision in CardSoft v. Verifone, which the Court overturned the district court’s claim construction. Overturning a district court’s claim construction is hardly unusual, and perhaps more typical than it really should be, but that is another story for another day. What was unique about this particular case was that the Federal Circuit also went on to rule that CardSoft had waived any argument that the defendants had infringed under what they determined to ultimately be the correct claim construction.
CardSoft filed this patent infringement suit in March 2008 against VeriFone, Inc., VeriFone Systems Inc., and Hypercom Corp. (collectively, “Defendants”), asserting infringement of U.S. Patent Nos. 6,934,945 (“the ’945 patent”) and 7,302,683 (“the ’683 patent”). The district court held a Markman hearing in July 2011 and conducted a jury trial in June 2012. The jury determined that certain of the Defendants’ devices infringed claim 11 of the ’945 patent and claim 1 of the ’683 patent and that these claims were not invalid. The Defendants moved for a new trial and for judgment as a matter of law, but the district court denied both motions.
Last week the United States Court of Appeals for the Federal Circuit issued a decision in State of Vermont v. MPHJ Technology Investments, LLC. The decision, which was really not much of a decision because the Federal Circuit concluded they lacked jurisdiction, is interesting for at least several reasons.
While Vermont’s actions are undoubtably laudable, despite what some conclude I suspect that when challenged the legislation will fall because it pre-empts patent law, which is federal. For example, one of the factors that would suggest a bad faith patent enforcement under the Vermont statute is if there has previously been a lawsuit or threatened lawsuit based on the same or similar claim of patent infringement.
This is the third and final installment of my recent interview with former Federal Circuit Chief Judge Paul Michel. In this installment of the interview we discuss the future of the Federal Circuit now that Judge Rader is a private citizen. We discuss the type of candidate that should be appointed to replace him, and the always concerning panel dependency.
QUINN: So now we still have one topic still to discuss. Perhaps, if you have the time, we could talk about the Federal Circuit. I don’t want to get into any of the touchy subjects, which some people are diving into. I’m more interesting in talking about moving forward, you know, Judge Rader is now a private citizen and he was clearly one of the champions of the patent system and a believer in the power and the importance of patents. And now he’s not on the Court any more. I wonder what that’s going to mean moving forward. I wonder— and then I can’t help but wonder about panel dependency, which is a problem that a lot of people talk about. And particularly in light of the fact that the Supreme Court has remanded Ultramercial to the Federal Circuit. And Judge Rader was on that panel. So you already have people talking about whether that outcome in what could be a very important case will become panel dependent.
MICHEL: Right. Well, first of all I think Judge Rader will continue to play a very constructive role as a vocal spokesman now in the private citizen realm. And in fact being a private citizen he can be much more frank and candid than he was able to be as a sitting judge. So his voice may get even more interesting and even louder as a part of the overall debate. His replacement will be very important. So just as people are focused on is Phil Johnson going to become the new patent director, will he get nominated, can he get confirmed, how will he do? All those interesting very important questions, people should also be asking who will replace Judge Rader? Who will get nominated, can that person get confirmed, can they get confirmed as fast as they need to get confirmed so the Court is at full strength?
Chief Judge Randall R. Rader today announced that he will step down as Chief Judge of the United States Court of Appeals for the Federal Circuit on May 30, 2014. Judge Rader will continue in active service on the Court, although the official announcement says that he will also undertake additional teaching, lecturing and travel.
This surprise announcement by Judge Rader, who turned 65 on April 29, 2014, means that Judge Sharon Prost will become the next Chief Judge of the Federal Circuit. Had Judge Rader served his entire term as Chief Judge succession rules would have meant that the title of Chief Judge would pass Judge Prost and go on to Judge Moore, who remains next in line after Judge Prost.
In a non-precedential opinion issued October 18, 2013, the Federal Circuit issued a decision that calls into question the overall utility of forum selection clauses in contractual relationships. In fact, Eli Lilly lost its bid to have its dispute with Genentech and City of Hope heard in the Northern District of California despite having a forum selection clause in the governing contract that stated the parties would litigate any dispute in the Northern District of California. See In re Eli Lilly and Co.
Last week the United States Court of Appeals for the Federal Circuit issued a decision in the latest appeal in the Apple/Samsung epic patent battle. See Apple, Inc. v. Samsung Electronics Co. (Fed. Cir., August 23, 2013). In this situation the parties really were not fighting against each other; instead finding themselves arguing on the same side against the decision of the district court to allow sensitive information to be publicly available.
On August 9, 2012, Judge Lucy Koh of the United States District Court for the Northern District of California issued a decision that denied in part the parties’ motion to seal certain filings. In general, Judge Koh sealed information about the parties’ production and supply capacities, confidential source code, third-party market research reports, and the pricing terms of licensing agreements. However, Judge Koh ordered unsealed documents disclosing the parties’ product-specific profits, profit margins, unit sales, revenues, and costs, as well as Apple’s own proprietary market research reports and customer surveys and the non-price terms of licensing agreements.
In her ruling Judge Koh ordered the parties to take an immediate appeal to the Federal Circuit, which occurred on August 13, 2012. The Federal Circuit consolidated the appeal by Apple and the appeal by Samsung, designating Apple as the appellant and Samsung as the cross-appellant. On August 15, 2012, the district court granted a stay pending the final resolution, thus the August 9, 2012 order that sensitive financial information would be made publicly available has been stayed pending disposition of the appeal.
In what can only fairly be characterized as utterly ridiculous, 5 of the 10 judges on the Federal Circuit to hear CLS Bank v. Alice Corporationen banc would find that claims that satisfy the machine-or-transformation test are not patentable. While I think it is inappropriate to find the systems claims patent ineligible that isn’t what makes the decision utterly ridiculous. The decision is an embarrassment because 5 other judges would have found the systems claims patent eligible. Thus, we have an even split of opinion at the Federal Circuit.
The Federal Circuit decision in CLS Bank v. Alice Corp. is now being horribly mischaracterized in the media, which will now only further complicate the matter in the court of public opinion. This decision offers no precedent whatsoever regarding systems claims because it was a tie. Alice Corporation loses the systems claims not because that is the law of the land announced by the Federal Circuit, but rather because a single district court judge determined that the systems claims were patent ineligible. Had that same district court judge found the systems claims patent eligible then Alice would have prevailed.
In other words, the Federal Circuit is essentially abdicating its authority relative to whether systems claims are patentable to the district courts and presumably also to the Patent Trial and Appeals Board at the United States Patent and Trademark Office. Whatever the district court or PTAB does is just fine. Well, not quite.
On Friday, December 7, 2012, the United States Court of Appeals for the Federal Circuit issued a precedential opinion in Raylon v. Complus Datathat gives hope to defendants everywhere who face objectively baseless patent infringement claims. For a very long time I have preached that the tools to deal with the bad actors in the patent community (i.e., patent trolls) exist if only the Federal Circuit and the district courts would stand up to the challenge. Rule 11 of the Federal Rules of Civil Procedure give district courts the ability to sanction litigants for frivolous court filings. Unfortunately, Rule 11 is almost never used. Today, however, the Federal Circuit determined that the district court abused its discretion when it denied the defendants’ Rule 11 motions.
At the conclusion of the decision Judge Prost, writing for the majority, wrote:
We reverse the district court’s holding that there was no Rule 11 violation and remand to the district court to determine, in the first instance, a proper sanction. Because the court’s evaluation of § 285 relied on its Rule 11 analysis, we vacate the district court’s denial of attorneys’ fees and costs, and remand for the court to reconsider defendants’ motions in light of our decision.
Of particular note, however, is that Judge Reyna only joined in the decision, but chose to file a separate concurring opinion. Judge Reyna explained that he differed only slightly with his colleges (Judges Prost and Moore). Judge Reyna would not have preferred not to remand the issue for further consideration on the merits of the defendants’ request for attorneys fees, but rather would have found this case exceptional and remanded only on the issue of what sanctions would be appropriate pursuant to 35 U.S.C. § 285.
Todd Dickinson, AIPLA Executive Director, October 26, 2012, starts the panel discussion.
The annual meeting of the American Intellectual Property Law Association (AIPLA) was held last week in Washington, DC at the Marriott Wardman Park Hotel. The event was attended by well in excess of 2,000 attorneys predominantly from the United States, but with a strong contingency of attorneys from foreign firms. I personally had the opportunity to meet with attorneys from Canada, Japan, Korea and the United Kingdom.
One of the presentations I attended was the panel moderated by Todd Dickinson, who is the current Executive Director of the AIPLA and a former Director of the United States Patent and Trademark Office. Also on this panel were Judge Sharon Prost of the United States Court of Appeals for the Federal Circuit, USPTO Director David Kappos, Eli Lilly General Counsel Bob Armitage, Senior Counsel to the Senate Judiciary Committee Aaron Cooper and Oblon Spivak attorney W. Todd Baker.
Dickinson led an informative question and answer session centering on the expectations and early results from the various changes to the patent system implemented by the America Invents Act. The title of the panel discussion was simply – AIA – Will the New System Work? Not surprisingly, everyone was in agreement that the system will work, even if only because it has to work since now it is the law.
Those who have been following comments on the split decision in CLS Bank v. Alice Corp. case will be unsurprised to learn that yesterday the Federal Circuit ordered a rehearing en banc in the matter, vacating the panel decision originally decided on July 9, 2012.
The questions to be addressed on appeal are:
1. What test should the court adopt to determine whether a computer-implemented invention is a patent ineligible “abstract idea”; and when, if ever, does the presence of a computer in a claim lend patent eligibility to an otherwise patent-ineligible idea?
2. In assessing patent eligibility under 35 U.S.C. § 101 of a computer-implemented invention, should it matter whether the invention is claimed as a method, system, or storage medium; and should such claims at times be considered equivalent for § 101 purposes?
The parties have been invited to file new briefs on these questions, and the case will be heard based on the original briefs and any new briefs filed.
Litigation involving incorrect claims of small entity status is very rare. In the 1998 case of DH Technology, Inc. v. Synergystex International, Inc., the small entity issue fee was paid for the asserted patent, even though it was later discovered that the patentee had over 500 employees (i.e., was now a “large entity”) at the time this issue fee was paid. Even so, the Federal Circuit overturned a district court ruling that the asserted patent had lapsed and was therefore unenforceable because the patentee had “incorrectly paid the small entity issue fee and because the statutorily-permitted time for correcting the error had passed.” Instead, the Federal Circuit held that 37 CFR § 1.28(c) (allowing an erroneous claim of small entity status and the erroneous payment of the small entity issue fee to be excused by paying the deficiency owed) controlled so that the patentee could still rectify this error (and underpayment of the issue fee), even though well outside the 1 year and 3 month “after the date of the notice of allowance” period specified in 37 CFR § 1.317(c) for correcting a good-faith error in claiming small entity status, as well as making up the deficiency for incorrectly paying the small entity issue fee.
DH Technology is the “easy case” where small entity status is lost due to a change in size of the patentee. But small entity status under 37 CFR §§ 1.27(a)(1) (person) or 1.27(a)(2) (small business concern) may also be lost if the rights in the invention are assigned, granted, conveyed, or licensed (or are subject to an obligation under contract or law to assign, grant, convey, or license, any rights in the invention) to someone other than a small entity (e.g., an entity having more than 500 employees). That was the situation in the recent case of Outside The Box Innovations. L.L.C. v. Travel Caddy, Inc. where an agreement between the patentee (Travel Caddy) and its distributor/seller (The Rooster Group, a large entity of greater than 500 employees) of the patented tool cases was deemed by the district court to contain a patent license clause for the purposes of 37 CFR § 1.27(a)(2). Even worse, the district court held that Travel Caddy had “committed inequitable conduct by claiming small entity status and paying reduced PTO fees, and that this conduct rendered both the ‘992 and ‘104 patents permanently unenforceable.”
The decision of the Supreme Court in Prometheus has been predicted to have implications for business method patentability, but the decision in what will surely become known as the Alice case provides an early indication that the CAFC may endeavour to limit its scope. Whether the claimed subject matter lies in the reality of patent-eligible subject-matter or is more correctly located in the Wonderland of abstract ideas is an issue that has been debated on both sides of the Pond, and on which the Dodo or the King of Hearts in his judicial capacity would surely have had an opinion if it had been brought to their attention. In the US there appears to be ample scope for further debate.
The patentees Alice Corporation are based in Australia and are a joint venture between a private company and National Australia Bank Limited. Their website  explains that they were established in Melbourne in 1995 and have applied for and obtained patents on their financial market innovations worldwide, including in the US, UK and other major financial centres. The patented innovations cover the trading of risk, investment, lending, exchanging and similar products. Alice exploits its inventions by licensing selected entities. Neither Alice nor Ian Shepherd who was the inventor has a significant web presence, and in contrast to the situation in Prometheus there appears to be no back-story that throws light on the merits or otherwise of the alleged invention.