On November 19, 2014, the United States Court of Appeals for the Federal Circuit issued a decision in e.Digital Corporation v. Futurewei Technologies, Inc. e.Digital appealed from a judgment of non-infringement made by the U.S. Federal District Court for the Southern District of California. The district court based its determination of non-infringement on the fact that e.Digital was collaterally estopped from seeking a construction of a claim limitation in e.Digital’s U.S. Patent Nos. 5,491,774 and 5,839,108 different from another court’s previous construction of the same limitation in the ’774 patent.
The Federal Circuit, with Judge Moore writing and joined by Judges O’Malley and Reyna, held that the district court correctly applied collateral estoppel to the ’774 patent, but improperly applied the doctrine to the unrelated ’108 patent.
To understand the ruling in this case one must first look at the prior case that construed the critical claim. Previously, in a litigation in the United States Federal District Court for the District of Colorado, e.Digital asserted claims 1 and 19 of the ’774 patent. The ’774 patent discloses a device with a microphone and a removable, interchangeable flash memory recording medium that allows for audio recording and playback. Asserted claims 1 and 19 recited “a flash memory module which operates as sole memory of the received processed sound electrical signals.” The district court construed the sole memory limitation to require “that the device use only flash memory, not RAM or any other memory system” to store the “received processed sound electrical signals.” The district court based its construction on the written description of the ’774 patent and its determination that the use of RAM had been disclaimed during prosecution. With this claim construction decided, the parties stipulated to a dismissal of the case with prejudice.
The original January 2013 opinion was authored by Judge Neman with Judges Prost and Reyna in agreement. In that opinion the Court identified claim 34 as representative of the “shopping cart” claims, and held claim 34 invalid on the ground of obviousness. The parties stated, on petition for rehearing, that the Federal Circuit ruling should have been for claim 35, which would conform to the judgment entered on the jury verdict. Ultimately, the rehearing was not successful and claim 35, like claim 34, was ruled invalid because it was obvious. See Soverain Software LLC v. Newegg, Inc. (Fed. Cir., September 4, 2013).
The Newegg brief in opposition to Soverain’s Petition for Certiorari was due on November 18, 2o13, but Newegg’s attorney requested an extension until Thursday, December 12, 2013, so we await the filing of Newegg’s opposition brief. I have been told that Soverain plans to file a reply to whatever Newegg files, so it will be some time before we know whether the Supreme Court will take this important case.
The Pioneering Technology
Before diving into why this case matters and everyone should pay close attention, allow me to point out that the technology involved in this case is THE original shopping cart technology. In fact, the ‘314 patent matured from a patent application that was filed on October 24, 1994. Despite what you may have heard, this is not an example of a bad patent, nor is it something that wasn’t new or was legitimately obvious at the time it was invented, which would have been some meaningful time before October 24, 1994. This is an example of a pioneering invention that came about at the dawn of Internet as we know it today. The fact that it is ancient in Internet terms does not mean that the claims are bad, it merely means that the innovation embodied in the patent is fundamentally important. Indeed, the Soverain’s enterprise software product has been in use for nearly 18 years, and has been used by over 1,000 customers in over 25 countries, including companies such as Time-Warner, AT&T, Sony, Disney, BusinessWeek and Reuters.
Legend #2: All companies have equal access in obtaining inter partes review of the patents of others.
Truth: Of the initial denials of inter partes petitions that we identified, 88% of them were directed at petitions filed by small entities.
David and Goliath by French painter James Tissot, 1904.
When the America Invents Act was first passed, it was contemplated by many that its post-grant challenge procedures would be “particularly useful for individuals, start-up companies, and small-to-medium enterprises.” See, Rantanen, Lee Peterbridge and Jay P. Kasen, America Invents, More or Less? (University of Iowa Legal Studies Research Paper, Number 12-09, p. 235, March 2012).
Our inter partes challenge data from pre- and post-passage of the AIA clearly show that of the relatively few initial denials made by the USPTO of an inter partes challenge request, most fell on entities that typically file as small entities. We found 88% of denied petitions for inter partes review were filed by small entities, while only 12% of those denials related to petitions filed by large entities (Fig. 6). That is, small entities are 7 times more likely to have their petitions for inter partes review denied than large entities. Of the large entity petitions for inter partes review that were denied, only one of them was by a company in the Global 2000+. It is unclear why this is occurring. It could be argued that small entities simply are not seeking the same high quality legal work that the large entities are employing. An alternative answer may simply relate to an ingrained bias in the USPTO for the reexamination requests of the largest companies (as inter partes review requests are not blinded), which is unwittingly leading to more small entity requests being denied.
Myth 3: Independent inventors and independent inventor companies set up to license their patents have had little impact on the Troll story.
Truth: Independent inventors have a great impact on the NPE story, with independent inventors and independent inventor companies set up to license their patents filing considerably more suits under the joinder rules of the AIA on the average than non-independent inventor based NPEs. Their patents also fare significantly worse in both litigation and reexamination proceedings.
Independent Inventors have long distinguished themselves from “Patent Trolls” arguing the term would soon be used by large companies to stop independent inventor activity. See Chad Vice, Edison Nation Forums, forum post entitled The Patent Trolls’ Lie and The War on Independent Inventors, June 23, 2013. Unfortunately, so-called “experts” in the troll story have consistently been including independent inventor activity in the “troll” category for at least over a decade. In fact as our figures slow, there is no conceivable way of getting anywhere near a majority of troll suits post AIA unless one is counting all independent inventor suits, and suits by their alter ego companies, into the mix. While some may think this unfair, it is simply a fact.
To our knowledge, this is the first study that looked at the effects of independent inventor, and, in particular independent inventor company (that is, companies that we determined were just the alter ego of the individual inventors themselves) were having on the overall NPE numbers. That is, we looked behind the NPE to decide whether a company was just an alter ego of an independent inventor.
I’m in New York City today at PLI headquarters on Seventh Avenue for the USPTO Post-Grant Patent Trials 2013 program. I will moderate a panel this afternoon, but as the day starts the first speaker is David Kappos, former Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office. Since leaving the USPTO at the end of January 2013, Kappos has landed at the New York offices of Cravath, Swaine & Moore, an extremely well regarded Am Law 100 firm and great place to land. It was good to see him, he says he is doing well, and he seems to have as much energy and enthusiasm as ever.
Kappos started by explaining that this is his first public speaking engagement since leaving the USPTO. From the outset he also explained that the slides he would be using for the presentation were prepared by the USPTO. This presentation was originally scheduled to be given by James Smith, Chief Judge of the PTAB, who had to beg off as the result of sequestration cuts.
This article is by no means a substitute for the presentation by Kappos. In 60 minutes he managed to bring everyone up to date on what is going on at the USPTO relative to Appeals and other post patent proceedings. Of course, there were a handful of things that particularly caught my attention. For that reason I also provide my thoughts and comments in the format of comments from the peanut gallery, or perhaps as a patent attorney equivalent to Mystery Science Theater 3000. In order to differentiate my thoughts/comments from the FTC statement, my comments are italicized, colored, indented and tagged with the IPWatchdog logo.
David Kappos will speak about Post-Grant Trials at PLI in NY on March 27, 2013.
Next week on Wednesday, March 27, 2013, I will be once again in New York City at Practising Law Institute headquarters on Seventh Avenue, roughly between Central Park and Times Square. The program for the day is titled USPTO Post-Grant Patent Trials 2013, which will provide 6 CLE credits for attendees.
I am a moderator for the segment titled Practice Before the PTAB Roundtable, which will discuss the first trial petitions filed, motions practice, scheduling, the possible need for rule refinements and practice tips for practitioners. Robert Sterne of Sterne Kessler and Professor Lisa Dolak of Syracuse University College of Law will be the panelists.
A new addition to the program just announced today is David Kappos, who is the immediate former Director of the United States Patent and Trademark Office. Kappos, a life-long employee of IBM prior to taking charge of the USPTO, is now with Cravath, Swaine & Moore LLP in New York City. Kappos will discuss the Patent Trial and Appeal Board, specifically discussing ex parte reexamination, the remaining legacy inter partes reexamination cases, inter partes review and the transitional program relating to covered business method patents. His segment will run from 9:15 am to 10:15 am. In addition to being presented live in New York City the program will also be webcast.
For several years I was the lead attorney at a Taiwan company that manufactures technology and consumer electronic products, from light-emitting diodes to liquid-crystal displays. Every month we received a new demand for patent licensing or indemnification and it was my job to dispose of them at no cost, without licensing, litigation, or outside counsel. Usually it was possible, but occasionally we found ourselves mired in full-blown litigation.
It’s no secret patent litigation costs are immense. According to the American Intellectual Property Law Association, the cost of an average patent lawsuit, where $1 million to $25 million is at risk, is $1.6 million through the end of discovery and $2.8 million through final disposition. Adding insult to injury, more than 60% of all patent suits are filed by non-practicing entities (NPEs) that manufacture no products and rely on litigation as a key part of their business model.
However, whether one represents a plaintiff or defendant, manufacturer or NPE, there are actions one can take to help manage the costs. Below are some general guidelines.
Between the legacy issue of bad patents, patent auctions and the many who purchase patents, what has started to happen is that the patent system rewards those who have the finances and ability to game the system. But the problem is extraordinarily complex. What is clear, however, is that the enforcement of bad patents is a problem within the patent and innovation industry.
But at the same time it would really be GREAT if the media and anti-patent community would get a clue and understand that the problem with bad patents is largely a legacy issue. Those that say that the United States Patent and Trademark Office continues to hand out dubious patents like candy are flat wrong. The bad patents that we witness being used in unsavory shake-downs have not been granted over the last few years, but rather were granted many years ago, under a different patent regime and when there was little findable prior art for patent examiners to use.
Those that pretend that bad patents issue today by the dozen and for a dime are living in a fantasy world that does not approximate reality. Yet the misinformation continues, undaunted by reality. So if reality doesn’t support the mountains of misinformation about the patent system and how it operates today, what is going on?
President Obama signs the AIA. September 16, 2011.
The America Invents Act (AIA) was signed into law by President Obama on September 16, 2011. The AIA ushered in numerous changes to patent law, but there will be even more changes to patent practice and procedure. The way many things are done at the USPTO on behalf of clients will change, with the next wave of changes becoming effective on September 16, 2012, on the one year anniversary. Over the next several weeks we will be taking some detailed looks at these changes, as well as flashing back to remember the passing of patent reform.
We begin our journey today with the Supplemental Examination Final Rules, which were published in the Federal Register on August 14, 2012. Section 12 of the AIA amended chapter 25 of title 35, United States Code, to add new 35 U.S.C. 257, which permits a patent owner to request supplemental examination of a patent by the United States Patent and Trademark Office. The purpose of supplemental examination is to provide an avenue for the patent owner to ask the USPTO to consider, reconsider, or correct information believed to be relevant to the patent. Although supplemental examination goes into effect on September 16, 2012, it can be used for any patent issued on, before or after September 16, 2012.