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Fresh From the Bench: Recent Patent Cases From the Federal Circuit

April 14, 2014

Overview

In re Toyota ‎-In an unusual grant of a writ of mandamus, the Circuit determines that the E.D. of Texas ‎abused its discretion in denying a motion to ‎transfer an action to the E.D. of Michigan. ‎

Microsoft – A divided panel rules on the lack of sufficient controversy to support subject matter jurisdiction where declaratory judgment actions were based on infringement actions against a customer.

Chicago Board – The Circuit reverses a determination of indefiniteness because one of ordinary skill would be able to determine the meaning and scope of the claim.

In re Toyota Motor Corporation and Gulf States Toyota, Inc., Fed. Cir. ‎Case 2014- 113 (4/3/2014)‎

A unanimous panel determined that the E.D. of Texas abused its discretion ‎in denying a motion to transfer where there were no factors that favored ‎keeping the claims against Toyota in the transferor forum and where ‎several factors favored the transferee forum. Gulf States could not have ‎been sued in the transferee forum so this petition also included a motion to ‎sever Gulf States and to stay that case while the case was litigated in the E. ‎D. of Michigan.‎

AVS, a subsidiary of the patent enforcing company Acacia Research, is ‎incorporated in the E. D. of Texas. This was found by the district court not to ‎favor the transferor forum since, without identifying any witnesses or ‎evidence, AVS merely contended that "AVS is located in Texas and any of ‎its witnesses would have to travel to Michigan." AVS simultaneously filed ‎several other cases in the E.D. of Texas involving the patents at issue, ‎although motions to transfer were pending in those cases as well. At least ‎two factors favored the transferee forum: some of the patents at issue are ‎in the same family as patents that had been litigated over the past ten years ‎in the E.D. of Michigan; and a number of witnesses in Michigan have ‎knowledge potentially relevant to infringement and validity, "even if it is not ‎possible at present to specify further just how material their testimony might ‎be to the yet-undeveloped issues in the case." ‎

With nothing on the transferor-forum side of the ledger, the panel granted ‎the writ of mandamus, finding that the transferee forum is clearly more ‎convenient.‎

This case, in combination with the recently-denied writ of mandamus in In re ‎Apple Inc. (2/27/2014), demonstrates that in both opposing and advocating ‎for a motion to transfer, the parties must provide detailed accounts of how ‎witnesses and evidence are going to be more conveniently obtained in ‎either the transferor or transferee forum. Here AVS simply alleged it was ‎based in Texas without identifying any witnesses that had pertinent ‎evidence. The same was true in Apple where, according to the majority, ‎Apple didn't allege much more than it simply had thousands of employees in ‎the transferee forum.‎

Microsoft Corporation and SAP America, Inc. v. Datatern, Inc., Fed. ‎Cir. Cases 2013-1184 and 1185 (4/4/2014) ‎)

This appeal describes the circumstances in which an infringement suit ‎against a customer creates subject matter jurisdiction for a declaratory ‎judgment action filed by suppliers of the products at issue. In issuing its ‎ruling, the court deals with the effect the following have on whether there is ‎a sufficient controversy to support jurisdiction: submission of claim ‎infringement charts in the customer action; indemnification requests by the ‎customers; instruction manuals authored by the suppliers or by third parties; ‎aggressive litigation practice by the patentee; and post-filing conduct by the ‎patentee. ‎

The threshold question for declaratory judgment ‎jurisdiction is "whether the ‎facts alleged, under all the circumstances, show that there is a substantial ‎controversy, between parties having adverse legal interests, of ‎sufficient ‎immediacy and reality to warrant the issuance ‎of a declaratory judgment." ‎MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007). The ‎majority determined that the claim charts support subject matter jurisdiction ‎as to SAP's DJ action on the ‘402 and ‘502 patents since the charts allege ‎direct infringement as to those patents and the charts cite to SAP's user ‎guides, which provide the required mental state to support inducing ‎infringement as to those patents. The same is true as to Microsoft's action ‎regarding the ‘502 patent since the charts cite to Microsoft's online ‎documentation for each limitation of the ‘502 patent's representative claims.‎

However, the ‘402 patent claim charts are not adequate to establish a ‎substantial controversy because they cite to third party -– not Microsoft- ‎provided --documentation for several key claim limitations. While these ‎claim charts allege customers' direct infringement based on use of ‎Microsoft's product, they do not assert inducement or contributory ‎infringement by Microsoft. Simply selling a product capable of being used in ‎an infringing manner is not sufficient to create subject matter jurisdiction as ‎to indirect infringement.‎

In finding subject matter jurisdiction as to the ‘402 patent, the district court ‎relied heavily on post-complaint facts, namely (1) DataTern's conditional ‎counterclaims to Microsoft's DJ complaint (conditioned on the court denying ‎DataTern's motion to dismiss); (2) DataTern's reference to infringement in ‎the scheduling order; and (3) DataTern's refusal to grant Microsoft a ‎covenant not to sue. According to the panel, because a DJ plaintiff must plead facts sufficient to ‎establish jurisdiction at the time of the complaint, post-complaint facts ‎cannot create jurisdiction where none existed at the time of filing. Even if ‎these facts could be considered, the panel felt they are not adequate to establish ‎jurisdiction. The first two facts were conditional on the court denying ‎the motion to dismiss and, as to the refusal to grant a covenant not to sue, a ‎patentee has no obligation to make a definitive determination at the time of ‎the competitor's choosing that it will never bring an infringement action.‎

The panel also felt that other circumstances that may have otherwise supported ‎jurisdiction over Microsoft's DJ challenge of the '402 patent are not present ‎in this case. Here, the only time DataTern and Microsoft communicated, ‎DataTern assured Microsoft it did not intend to sue Microsoft. Similarly a ‎patentee's aggressive enforcement strategy does not support jurisdiction ‎here because all of DataTern's enforcement actions involve software users, ‎not software suppliers.‎

Judge Rader dissented from the majority's ruling as to Microsoft's action on ‎the ‘402 patent based on his feeling that the majority viewed each fact in ‎isolation instead of considering a totality of the circumstance. "The ‎unfortunate consequence of this decision creates a roadmap to avoid ‎declaratory judgment when it may be most valuable to resolve disputes ‎early and efficiently."‎

Chicago Board Options Exchange, Inc. v. Intl. Securities Exchange, ‎LLC, Fed. Cir. Case 2013-1326 (4/7/2014)‎

This case was originally two cases – one filed in New York by ISE for ‎infringement and a declaratory judgment action filed in Chicago by CBOE. The cases were consolidated in ‎Chicago. The patent in suit is directed to an automated exchange for trading ‎financial instruments. The patent distinguishes an automated exchange ‎from the traditional, floor-based "open-outcry" system for trading options ‎contracts. In the open-outcry system an order is relayed to a trader standing ‎in a "pit." The trader shouts out that he has received an order and waits until ‎another trader shouts back the prices at which he is willing to buy and sell ‎an option contract, and a trade results. The patent covers a way to ‎automate this process.‎

This is the second time the case has been to the Circuit. The first time was ‎on claim construction. On remand, the district court made certain ‎evidentiary and other pretrial rulings, including on jury instructions. ISE ‎stipulated to non-infringement because it felt the district court's pre-trial ‎rulings prevented it from proving infringement. After reviewing each of the ‎pre-trial rulings, the Federal Circuit affirmed the rulings and the judgment as ‎to non-infringement.‎

The more interesting part of this opinion relates to the panel's handling of a ‎the district court's ruling that claim 2 was indefinite because the specification failed to disclose an ‎algorithm for performing the recited function.‎

Claim 2, a computer-implemented means-plus- function ‎claim, recites:‎

The exchange according to claim 1, wherein ‎processor means further comprises means for ‎matching the remaining portion with professional ‎orders or quotations in the book memory means on ‎a pro rata basis.‎

The Circuit previously construed "matching" as ‎‎"identifying a counterpart order or quotation for an ‎incoming order or quotation" and agreed with the district ‎court that "matching" and "allocating" are distinct ‎processes. Citing Aristocrat Techs Australia PtyLed. v. Intl. ‎Game Tech., 521 F.3d 1328, 1333 (Fed. ‎Cir. 2008), the ‎district court found that claim 2 was indefinite because ‎the specification did not disclose a step-by-step algorithm ‎for performing the claimed function. Aristocrat and other ‎cases hold that, for means-plus-function claims, the ‎corresponding structure in the specification must be a step-‎by-step algorithm, unless a general purpose computer is ‎sufficient for performing the claimed function. ‎

According to the panel, such an algorithm may be ‎expressed "in any understandable terms including as a ‎mathematical formula, in prose, or as a flow chart, or in ‎any other manner that provides sufficient structure" to a ‎person of ordinary skill in the art. "We must also remember ‎that a challenge to a claim containing a means-plus-‎function limitation as lacking structural support requires ‎a finding, by clear and convincing evidence, that the ‎specification lacks disclosure of structure sufficient to be ‎understood by one skilled in the art as being adequate ‎to perform the recited function." ‎

The panel determined that CBOE had not met its burden ‎because the specification discloses an algorithm for ‎matching the remaining orders on a pro rata basis. First, "matching" itself is not indefinite, having been ‎construed by this court as "identifying a counterpart order ‎or quotation for an incoming order or quotation." The ‎remaining question then is whether the specification ‎discloses an algorithm for "identifying a counter- part ‎order" on a pro rata basis.‎

"Pro rata" means in proportion. The specification ‎describes matching the orders on a size-based, pro rata ‎basis, as recited in claim 2. It also explains that, if the ‎order sizes are equal for two professionals, the professional ‎who placed the first order, gets matched first. Based upon ‎this discussion of size-based, pro rata matching, the panel held that a person of ‎ordinary skill in the art would understand the algorithmic ‎structure for performing the claimed function.‎

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