GOOD NEWS FOR PATENT OWNERS FROM THE CAFC

30.07.2017

By Lawrence Hoffman

Introduction:

Ask almost anyone what’s wrong with the U.S. patent system and you will get an earful. To be sure, there are things that need to be addressed. The Supreme Court is often at odds with the Court of Appeals for the Federal Circuit (CAFC), the Patent Trial and Appeal Board (PTAB) and the inter partes review (IPR) are out of control, Congress is said to be listening to the tech giants and big Pharma and not to new and smaller innovators and is hurting patent owners who use their patents to protect their commercial activities while punishing the patent trolls. The list seems endless.

However, the Supreme Court opinions on patentability are generalized and focus on broad concepts so the district courts and CAFC have the real day-to-day influence on what is patent eligible and what is patentable.

As to Congress, the squeaky wheel gets the grease. If the legitimate concerns of smaller patent owners and others in favor of a strong and fair patent system are being ignored, they need to band together and make noise in Washington. They may not get everything they want, but if they don’t try, they are likely to be ignored.

The district courts and the PTAB don’t always get it right, but the good news is that the CAFC overall, is patent friendly as shown by various recent decisions.

Novelty:

A claim is anticipated only if every limitation is expressly or inherently shown in a single reference. Nidec Motor Corp. v. Zhongshan Broad Ocean Motor Co. decided March 2017 is a good example of the CAFC fixing a PTAB mistake in an IPR.

Nidec’s patent was directed to motor control, and in simple terms, the factual issue the PTAB had to decide was if the asserted reference disclosed control signals in a rotating or a stationary frame of reference relative to the motor. The parties agreed that the claim in question required the signals to be in a rotating frame of reference.

The Board appears to have accepted Nidec’s argument that the reference signals were in the stationary frame of reference. Nevertheless, it found the reference to be anticipatory because a skilled artisan reading the reference would “at once envisage” the claimed arrangement. It based its decision on a complete misreading of an earlier CAFC decision in the case of Kennametal, Inc. v. Ingersoll Cutting Tool Co.

In Kennametal, the claim required a specific binding agent in combination with a specific coating technique. The reference disclosed the claimed binding agent as well as four others, and the claimed coating process along with two others. The exact claimed combination was not disclosed, but the patent stated that any of the binding agents could be used with any of the processes. The CAFC held that 15 combination, were disclosed, and therefore the claim was anticipated.

If your reaction is that the PTAB decision sounds like a holding of obviousness, I would have to agree. But that does not seem to have occurred to the Board members. Happily, the CAFC set things right, holding that the Board’s decision was not supported by substantial evidence.

Obviousness:

The good news here is that the CAFC is demanding a rigorous analysis to support a finding of obviousness. Specifically, to demonstrate obviousness, it must be clear (i) that all elements of the claim are either present in or suggested by the prior art, (ii) that one of ordinary skill in the art would be motivated to combine the references in a fashion that would result in the claimed invention, and (iii) that there was a reasonable expectation of success in doing so.

Securus Techs., Inc. v. Global Tel*Link Corp. is an example (some would say a rare example), of the PTAB getting it right. In that case, the Board had found the claims to be non-obvious, and the CAFC affirmed.

In contrast, in Web Technologies, LLC v. Apple, Inc. the CAFC held that the Board had failed to demonstrate the three requirements noted above, and sent the case back with instructions to the Board to apply the proper legal standard.

Injunctions:

When a district court or a jury finds a patent to have been infringed, and not proven to be invalid, a patent owner still has to deal with the question of damages. There are two questions: damages for past infringement and what to do about the possibility of continued infringement.

There is an enormous body of law that deals with damages for past infringement. Making the determination is not always straightforward, but it’s essentially an everyday part of patent litigation.

Dealing with future infringement would, on the other hand, seem to be straightforward: the court just has to issue a permanent injunction forbidding the infringing conduct. Before 2006, permanent injunctions were almost automatically granted after a finding of infringement. But then the Supreme Court decided eBay Inc. v. MercExchange in which it held that injunctions in patent cases were to be evaluated according to the normal four-factor test applicable to permanent injunctions in other situations.

Be cynical if you want, and think that the Court didn’t want  to shut down a thriving business at the forefront of the information age over something as unimportant as patent infringement, but as the law now stands, to obtain an injunction the plaintiff has to demonstrate (1) that it has suffered an irreparable injury; (2) that remedies available at law are inadequate to compensate for that injury; (3) that considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.

The one bright spot for patent owners in eBay was that willingness to license patents and lack of commercial activity in practicing patents, for example, by universities and, perish the thought, patent trolls, are insufficient reasons to establish that the patent holder would not suffer irreparable harm if the injunction did not issue.

In practice, eBay has made it much more difficult for a patentee to get an injunction against future infringement. The biggest obstacle has been the difficulty of proving irreparable harm.

But it’s not impossible, especially when the patent owner and the infringer are competitors.  Genband Us LLC v. Metaswitch, a July 2017 CAFC decision, is a good example of how to deal with the irreparable injury issue. In a jury trial, Genband’s patent was found to be infringed and valid. The district court, however denied an injunction because Genband had not demonstrated a causal connection between the alleged irreparable harm and the infringing conduct; in particular, that it had failed to demonstrate that the patented features drive demand for the product.

Genband presented evidence that Metaswitch was making sales in direct competition with it, causing Genband to lose sales. That is often the type of harm that meets the requirement for irreparability. But the CAFC disagreed with the rigid interpretation of the “drive demand” requirement imposed by the district court. The test, the CAFC held should be interpreted flexibly, especially where the product at issue has multiple purchasers and multiple features that different purchasers might assign different weights in their purchasing decisions. In such situations, it might only be required for the patented feature to be a driver, of decisions by a substantial number of individual consumer decision-makers considering multiple features.

In the end, the CAFC held that it was not clear that the district court applied a suitably flexible standard, and remanded the case to the district court for further consideration. In doing so, it observed that the patent owner only needs to:

Show some connection between the patented feature and demand for [the infringer’s accused] products. There might be a variety of ways to make this required showing, for example, with evidence that a patented feature is one of several features that cause consumers to make their purchasing decisions. It might also be shown with evidence that the inclusion of a patented feature makes a product significantly more desirable. Conversely, it might be shown with evidence that the absence of a patented feature would make a product significantly less desirable.

Of course, when it reconsiders the matter, the district court may still deny an injunction, for example, failure of Genband to meet one of the other eBay requirements. We will just have to wait and see, but the decision, on balance, is good news for patent owners.

Attorneys’ Fees:

On its face, AdjustaCam v. Newegg Inc. went against the patent owner, so you might say it wasn’t good news as such. But as I suggested above, it is necessary to distinguish between good patent owners such as ones who use their patents to protect their commercial activities or monetize them by fair licensing practices and the bad ones, i.e. the patent trolls. AdjustaCam rather clearly falls into the bad category. As described by the CAFC in its opinion:

AdjustaCam sued Newegg and dozens of other defendants for patent infringement. Although AdjustaCam voluntarily dismissed most defendants early in the litigation, it continued to litigate against Newegg, including through a [claim interpretation hearing] and extended expert discovery. Just before summary judgment briefing, AdjustaCam voluntarily dismissed its infringement claims against Newegg with prejudice. Newegg then filed a motion for attorneys’ fees. The district court denied Newegg’s motion, and Newegg appealed to this court. We remanded to the district court in light of [an intervening]…Supreme Court [decision]. On remand, the district court again denied Newegg’s motion for fees.

Newegg again appealed, the CAFC reversed.

AdjusaCam’s strategy was typical of patent trolls, as most of the defendants settled for nominal amounts to avoid the high cost of litigation. Under 35 U.S.C. § 285 if the court finds a case to be “exceptional” it has the power to award attorneys’ fees. On appeal, the decision of the district court is reviewed for abuse of discretion.

In 2014, the Supreme Court held in Octane Fitness, LLC v. Icon Health & Fitness, Inc., that “[A]n ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated”. The district court held that AdjustaCam’s conduct did not meet this requirement.

As stated by the CAFC in its opinion, a district court abuses its discretion when its ruling rests on an erroneous legal conclusion or on a clearly erroneous assessment of the evidence or when it makes a clear error of judgment in weighing relevant factors. In reversing, the CAFC held that the district court did not apply the Octane Fitness test and that its decision was based on “a clearly erroneous assessment of the evidence”, i.e., that AdjustaCam’s claim against Newegg was objectively baseless.

Of course, it remains to be seen how reasonably compensated Newegg will be. Reportedly, its defense and related costs exceeded $350,000. But when all is said and done, this case is a victory for the patent system as it imposes responsibility on those who would misuse and abuse the system. The Googles and Apples are also victims of abuse, to be sure, but the little guys for whom a good patent system provides significant benefits can less afford to be victims of abuse.

But before you accuse me of trying to put a pretty face on the Newegg case, consider the 11 May 2017 CAFC decision in NOVA Chemicals Corporation v. Dow Chemical Company in which the court sustained an exceptional case finding that resulted in an award of about $2.5 million in attorney fees to Dow, patent owner-winner in an infringement action.

The case goes back to 2005, when Dow filed an action for infringement of two patents. This resulted in a judgment against Nova for over $61 million in damages. The judgment was affirmed on appeal by the CAFC in 2010, and it was paid by Nova. Subsequently, the district court awarded Dow additional damages. On appeal of that award, the CAFC found the claims in suit to be indefinite based on the 2014 Supreme Court decision in Nautilus, Inc. v. Biosig Instruments, Inc. Importantly, however, the original judgment was not affected.

Before the second appeal, NOVA became aware of evidence that it regarded as demonstrating that Dow and its counsel had committed fraud on the court in the course of obtaining the 2010 judgment. By then, however, it was too late for NOVA to try to set that judgment aside. It therefore filed a separate action in equity against Dow (“the equity action”) for relief from the 2010 judgment.

The specific evidence asserted by Nova is not important for our purposes. Dow moved to dismiss the equity action, and the district court granted the motion to dismiss the complaint. In its opinion, the court stated that [t]here [wa]s fundamentally no adequate allegation of the grave miscarriage of justice that is required under the extraordinary circumstances for setting aside a prior judgment based on fraud. The court specifically rejected NOVA’s evidence as “immaterial and irrelevant” to the original action not related to any fact that had been in material dispute at the original trial. The CAFC affirmed the dismissal in 2015.

Dow then went back to the district court and obtained the award of attorney’s fees. The court found NOVA’s action to be an exceptional case based on the weakness of NOVA’s litigating position and the manner in which NOVA pursued this case, the court noting that NOVA’s claims for relief “just didn’t stand up” and were “not even plausible.”

On appeal, the CAFC has now affirmed the fee award.

 

 

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