Versata – In its first handling of an appeal from a covered business method (CBM) review, the Circuit affirms the PTAB’s ruling that the claims are invalid under Alice as being drawn to an abstract idea of determining a price using a computer. But before getting to that decision, the Circuit first rules that it could decide whether a patent is in fact a CBM patent, and then, that a patent could be challenged in such a proceeding for patent eligibility under ‎§‎ 101. As a result of having to determine these initial issues, as well as claim construction and a full review under Alice, the opinion ran over 70 pages.

Intellectual Ventures – The Circuit strikes down two more patents to computer-implemented inventions. The first of the patents is directed to tracking financial transactions to determine ‎whether they exceed a pre-set spending limit (i.e., budgeting). ‎The second of the patents relates to customizing web page content as a function of navigation history and ‎information known about the user. ‎Applying Alice‎, the panel determines that (1) the two patents claim unpatentable abstract ideas, and (2) the remaining claim elements, either in isolation or combination with the non-patent ineligible elements, are insufficient to transform the nature of the claims into patent-eligible applications. The panel also affirms a judgment of non-infringement of a third patent based on the district court’s claim construction.

In re Cuozzo – The Circuit votes to deny en banc review of the panel decision in In re Cuozzo, holding that claims challenged in PTO post-grant proceedings should be reviewed under the broadest reasonable interpretation standard. While the vote was 6-5, it is interesting to note that two of the judges voting to deny rehearing chose not to join either the majority’s or the dissent’s opinion. So, short of Congressional action changing the standard, BRI is here to stay, at least in the PTO. Two bills presently in Congress both propose eliminating the BRI standard in the PTO, but given the differences between the Senate and House versions on other issues, it is not clear that either bill is going to become law any time soon.

Celgard – The Circuit affirms the district court’s dismissal for lack of personal jurisdiction, rejecting Celgard’s purposeful direction and stream of commerce theories. Celgard’s purposeful-direction theory was based on its contention that SKI purposefully ‎directed its activities to North Carolina residents through a joint venture, allegedly with Kia, to develop ‎batteries for the 2015 Kia Soul EV. The panel rejects Celgard’s argument that ‎unilateral advertisements of two Kia dealers that the Soul EV would be coming soon to ‎dealerships in North Carolina supports the exercise of jurisdiction. ‎Second, Celgard’s inability to show that SKI could foresee that its separators would make their way to North Carolina ‎also fails to provide a basis for the exercise of jurisdiction necessary to support a stream of commerce theory.‎‎

SFA – Following a claim construction ruling that was favorable to non-practicing entity SFA, SFA voluntarily dismissed its suit with prejudice. Newegg moved for attorneys’ fees under § 285. The Eastern District of Texas denied the motion, determining that fees were not appropriate under Octane Fitness, noting that the fact that SFA had filed several lawsuits against numerous defendants is insufficient to render this case exceptional.On appeal the Circuit finds no abuse of discretion and affirms the ruling, while holding that courts must consider whether the case was litigated in an unreasonable manner as part of their exceptional case determination. The panel notes that the Supreme Court had not indicated that the Circuit needed to rethink the Brooks Furniture holding that unreasonable and vexatious litigation tactics can support an award of fees, even where it finds the legal theories not objectively baseless.

Versata Development Group, Inc. v. SAP America, Inc. , Fed. Cir. Case 2014-1194 (July 9, 2015)

In a full trial preceding this CBM proceeding, SAP had been found to infringe the patent and was ordered to pay $391 million in damages. SAP and Versata settled their case but Versata continued its appeal of the PTAB’s decision in the CBM review that had been initiated by SAP because the proceeding invalidated its patent.

The Circuit first considered if it should even review the issue of whether or not this patent is in fact a covered business method patent. The majority of the panel said yes it should, while Judge Hughes, in a spirited dissent, argued that the majority’s interpretation of § 324(e) directly conflicts with In re Cuozzo. Section 324(e) provides that the determination of whether to institute a post grant review shall be final and nonappealable. The dissent argued that whether a patent is within the definition of CBM is answered at the petition stage and thus is not reviewable by the Circuit.

The majority then turned to the present patent directed to a system for determining a price using a computer. The majority concluded it is a CBM, rejecting Versata’s argument that defining a CBM as encompassing anything relating to money matters was far too broad. The panel rejected Versata’s argument that the CBM program should only cover patents related to banks, brokerages and insurance, and not general business patents like this one.

The Circuit then looked to the issue of whether a petitioner in a CBM review can raise section 101 issues, which had been disputed by Versata and has been hotly debated by commentators and was the subject of amicus briefs. The panel ruled that it would require a hyper-technical adherence to form rather than an understanding of substance to arrive at a conclusion that section 101 is not available as a basis for challenging patents in either PGR or section 18 processes. The panel then noted how, in case after case, section 101 challenges have been closely considered and often successful.

The Claims Are Directed to an Abstract Idea for Determining a Price Using a Computer

After affirming the Board’s claim construction, applying the broadest reasonable interpretation (after rejecting Versata’s claim that BRI is not appropriate), the panel turned to the issue of whether the patent was invalid under § 101. Because the analysis of this issue is paramount in every practitioner’s mind, and because the opinion touches on the Intellectual Ventures case also decided this week, we include much of the panel’s discussion.

Claim 17 is representative:

A method for determining a price of a product offered to a purchasing organization comprising: arranging a hierarchy of organizational groups comprising a plurality of branches such that an organizational group below a higher organizational group in each of the branches is a subset of the higher organizational group; arranging a hierarchy of product groups comprising a plurality of branches such that a product group below a higher product group in each of the branches in a subset of the higher product group; storing pricing information in a data source, wherein the pricing information is associated, with (i) a pricing type, (ii) the organizational groups, and (iii) the product groups; retrieving applicable pricing information corresponding to the product, the purchasing organization, each product group above the product group in each branch of the hierarchy of product groups in which the product is a member, and each organizational group above the purchasing organization in each branch of the hierarchy of organizational groups in which the purchasing organization is a member; sorting the pricing information according to the pricing types, the product, the purchasing organization, the hierarchy of product groups, and the hierarchy of organizational groups; eliminating any of the pricing information that is less restrictive; and determining the product price using the sorted pricing information.

The Supreme Court has identified a two-step framework. First, determine whether the claims at issue are directed to one of the patent-ineligible concepts. Alice, 134 S.Ct. at 2355; Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012). Second, if the claims are directed to patent-ineligible subject matter, ask what else is there in the claims before us?”

In Alice, the Court held that claims directed to the abstract idea of intermediated settlement were unpatentable, even though some of the claims required generic computer implementation. In Bilski, the Court held that claims directed to the abstract idea of risk hedging were unpatentable. In Parker v. Flook, 437 U.S. 584 (1978), the Court held that a mathematical formula for computer alarm limits in a catalytic conversion process was a patent-ineligible abstract idea. In Gottschalk v. Benson, 409 U.S. 63 (1972), the Court held that claims involving an algorithm for converting binary-coded decimal numerals into pure binary form were unpatentable since the patent was, in practical effect, a patent on the algorithm itself.

These cases may be contrasted with Diamond v. Diehr, 450 U.S. 175 (1981), in which the Court held that a computer-implemented process for curing rubber was patent eligible even though it employed a well-known mathematical equation. It used the equation in a process to solve a technological problem in conventional industry practice.

Our court on numerous occasions has examined claims directed to abstract ideas. In Content Extraction & Transmission LLC v. Wells Fargo Bank, National Ass’n, 776 F.3d 1343 (Fed. Cir. 2014), we found that claims directed to the abstract idea of collecting data from hardcopy documents, recognizing certain information within the collected data, and storing that information in memory were ineligible. This was true despite noting that, if the claims were construed in the most favorable manner to the appellants, the claims would require scanning and processing technology.

In Ultramercial, we found that claims directed to the abstract idea of using an advertisement as an exchange or currency were ineligible even though the claims were tied to a general purpose computer and invoked the Internet. In buySAFE, Inc. v. Google, Inc., 765 F.3d 1350 (Fed. Cir. 2014), we found that claims directed to the abstract idea of creating a contractual relationship—a transaction performance guaranty—were ineligible despite the recitation of a computer that received and sent information over a network.

In Bancorp Services, L.L.C. v. Sun Life Assurance Co. of Canada (U.S.), 687 F.3d 1266 (Fed. Cir. 2012), we found ineligible claims directed to the abstract idea of managing a stable value life insurance policy. And in CyberSource Corp. v. Retail Decisions, Inc., 654 F.3d 1366 (Fed. Cir. 2011), we found that a broadly worded method claim and a claim reciting a computer readable medium for executing the method claim were ineligible. We concluded the claims were drawn to a method of verifying the validity of credit card transactions over the Internet, and the steps in the method could be performed in the human mind or by a human using a pen and paper.

These cases may be contrasted with instances in which we have found patents directed to patent-eligible subject matter. For example, in DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245 (Fed. Cir. 2014), we found that claims reciting a solution that was necessarily rooted in computer technology to overcome a problem specifically arising in the realm of computer networks were eligible. We drew a distinction between the patent-eligible claims at issue and patent-ineligible claims in the past that had merely recited commonplace business methods aimed at processing business information, applying known business processes to particular technological environments.

Applying the first step of the Alice/Mayo framework, we agree with the PTAB’s determination that the claims are directed to the abstract idea of determining a price, using organizational and product group hierarchies, in the same way that the claims in Alice were directed to the abstract idea of intermediated settlement, and the claims in Bilski were directed to the abstract idea of risk hedging. Using organizational and product group hierarchies to determine a price is an abstract idea that has no particular concrete or tangible form or application. It is a building block, a basic conceptual framework for organizing information, similar to the claims involving collecting, recognizing, and storing data in Content Extraction and the claims in CyberSource.

Applying the second step of the Alice/Mayo framework, we agree with the PTAB that, after considering the limitations of each claim individually and as an ordered combination, none of the claims have sufficient additional limitations to transform the nature of any claim into a patent-eligible application of an abstract idea. Taking the claim limitations separately, the function performed by the computer at each step is purely conventional. The limitations are either inherent in the abstract idea of determining a price using organization and product group hierarchies—e.g., arranging the hierarchies—or conventional and well-known limitations involving a computer e.g., storing pricing information. The PTAB specifically examined this issue and credited the testimony of SAP’s expert over Versata’s expert to determine that the additionally claimed steps of storing, retrieving, sorting, eliminating and receiving were “well-known, routine, and conventional steps.”

Similarly, when considered as an ordered combination, the components of each claim add nothing that is not already present when the steps are considered separately. Viewed as a whole, the claims simply recite the concept of price determination by using organizational and product group hierarchies as performed by a generic computer.

This court found similar claims to be ineligible despite the recitation of a general purpose computer or the Internet in Content Extraction, Ultramercial, buySAFE, Bancorp, and CyberSource. See also Intellectual Ventures I LLC v. Capital One Bank (USA), Nat’l Ass’n, No. 14-1506, 2015 WL 4068798 (Fed. Cir. July 6, 2015); OIP Techs., Inc. v. Amazon.com, Inc., No. 12-1696, 2015 WL 3622181 (Fed. Cir. June 11, 2015). The Supreme Court found similar claims to be ineligible despite recitation of a general purpose computer in Alice, Flook, and Benson. Moreover, the claims at issue are not sufficiently similar to the claims in Diehr and DDR Holdings to demonstrate that Versata’s claims are patent eligible.

Unlike Diehr, the claims at issue do not improve some existing technological process or solve some technological problem in conventional industry practice. Unlike DDR Holdings, the claims at issue are not rooted in computer technology to solve a problem specifically arising in some aspect of computer technology. Instead, the claims at issue are more like the claims we summarized in DDR Holdings as insufficient to reach eligibility—claims reciting a commonplace business method aimed at processing business information despite being applied on a general purpose computer.

Comment : Including the Intellectual Ventures case discussed below and decided earlier in the week,the Circuit has now, post- Alice, evaluated ‎§‎ 101 eligibility in ten different computer-implemented cases, and in ‎every instance other than the divided opinion in DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245 (Fed. Cir. 2014), has found the claims invalid. See, Internet Patents Corp. v. Active Network, Inc., Fed. Cir. Case 2014-1048 (June 23, 2015), OIP Techs., Inc. v. Amazon.com, Inc., 2015 U.S. App. LEXIS 9721 (Fed. Cir. June 11, 2015), Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709 (Fed. Cir. 2014), buySAFE, Inc. v. Google, Inc., ‎‎765 F.3d 1350 (Fed.Cir. 2014), Planet Bingo, LLC v. VKGS, LLC, 2014 U.S. App. LEXIS 16412 (Fed. Circ. 2014)(non-precedential), Digitech Image Technologies, LLC v. Electronics for Imaging, 758 F.3d 1344 ‎‎(Fed.Cir. 2014), and Content Extraction & Transmission LLC v. Wells Fargo Bank, N.A., 776 F.3d 1343 (Fed. Cir. 2014). We continue to hope to receive additional guidance soon on how to describe and claim our clients’ computer and internet-related inventions. 

Intellectual Ventures I LLC v. Capital One Bank (USA), Nat’l Ass’n, Fed. Cir. Case No. 2014-1506 (July 6, 2015)

Intellectual Ventures (IV) asserted infringement of three patents. The district court determined that the ‘137 and ‘382 patents were invalid as being directed to unpatentable abstract ideas. Following claim construction of the term “machine readable instruction form” in the ‘587 patent, the ‎parties stipulated to non-infringement of the asserted claims of the ‘587 patent, and this appeal followed. ‎

Bilski, Mayo, Alice, and Other Supreme Court Cases Applying ‎§101‎

An invention is patent-eligible if it fits into one of four statutory categories: processes, machines, manufactures, and compositions. 35 U.S.C. § 101. But there is an implicit exception. “Laws of nature, natural phenomena, and abstract ideas are not patentable.” Alice Corp. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014). A two-step process is used to determine whether the claims are directed to ineligible subject matter. First, the court determines whether the claims are directed to one of the patent-ineligible concepts (laws of nature, natural phenomena, or abstract ideas). An abstract idea does not become non-abstract by limiting the invention to a particular field of use or technological environment, such as the Internet. Alice at 2358; Bilski v. Kappos, 561 U.S. 593 (2010).

If we determine that the patent is drawn to an abstract idea or other ineligible subject matter, the court then asks whether the remaining elements, either in isolation or combination with the non-patent ineligible elements, are sufficient to “‘transform the nature of the claim’ into a patent-eligible application.” There must be an “inventive concept” to take the claim into the realm of patent eligibility, and a simple instruction to apply an abstract idea on a computer is not enough. Alice at 2358. Claiming the improved speed or efficiency inherent in applying an abstract idea on a computer does not provide a sufficient inventive concept. Bancorp Servs., LLC v. Sun Life Assurance Co. of Can., 687 F.3d 1266 (Fed. Cir. 2012); CLS Bank, Int’l v. Alice Corp., 717 F.3d 1269 (Fed. Cir. 2013) (en banc), aff’d, 134 S. Ct. 2347 (2014).

The ‘137 Patent is Not Directed to Patentable Subject Matter

The ‘137 patent generally relates to budgeting, or, as the district court described it, “utilizing user-selected pre-set limits on spending that are stored in a database that, when reached, communicates a notification to the user via a device.” Claim 5 is representative:

A method comprising:

storing, in a database, a profile keyed to a user identity and containing one or more user-selected categories to track transactions associated with said user identity, wherein individual user selected categories include a user pre-set limit; and

causing communication, over a communication medium and to a receiving device, of transaction summary data in the database for at least one of the one or more user-selected categories, said transaction summary data containing said at least one user-selected category’s user pre-set limit.

The patent claims are directed to an abstract idea: tracking financial transactions to determine whether they exceed a pre-set spending limit ( i.e., budgeting). While the claims recite budgeting using a “communication medium” (broadly including the Internet and telephone networks), that limitation does not render the claims any less abstract. The abstract idea here is not meaningfully different from the ideas found to be abstract in other cases involving methods of organizing human activity, such as a method of hedging risk ( Bilski 561 U.S. 593), and a computer-based implementation of a method of mitigating settlement risk using a third-party intermediary ( Alice, 134 S. Ct. 2347). In light of these precedents, the panel concludes that the asserted claims are equally drawn to an abstract idea.

Moving to step two of the Alice framework, it is clear that the claims contain no inventive concept. The ‎recited elements, e.g., a database, a user profile, and a communication medium, are all generic computer ‎elements. Instructing one to “apply” an abstract idea and reciting no more than generic computer ‎elements performing generic computer tasks does not make an abstract idea patent-eligible. Indeed, the ‎budgeting calculations at issue here are unpatentable because they “could still be made using a pencil ‎and paper” with a simple notification device, Cybersource, 654 F.3d at 1371, even in real time as ‎expenditures were being made.‎

The ‘382 Patent is Similarly Not Directed to Patentable Subject Matter

The ‘382 patent generally relates to customizing web page content as a function of navigation history and information known about the user. Claim 1 is representative:

A system for providing web pages accessed from a web site in a manner which presents the web pages tailored to an individual user, comprising:

an interactive interface configured to provide dynamic web site navigation data to the user, the interactive interface comprising:

a display depicting portions of the web site visited by the user as a function of the web site navigation data; and

a display depicting portions of the web site visited by the user as a function of the user’s personal characteristics.

After discussing how Alice supports a rejection of the claims, the panel turns to IV’s argument that the claims are like those in DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245 (Fed. Cir. 2014), and should be considered patentable. The patent at issue in that case dealt with a problem unique to the Internet: Internet users visiting one web ‎site might be interested in viewing products sold on a different web site, but the owners of the first web ‎site did not want to constantly redirect users away from their web site to a different web site. The claimed ‎solution used a series of steps that created a hybrid web page incorporating “look and feel” elements ‎from the host web site with commerce objects from the third-party web site. DDR‘s patent‎provided an Internet-based solution to solve a problem unique to the Internet that (1) did not foreclose ‎other ways of solving the problem, and (2) recited a specific series of steps that resulted in a departure ‎from the routine and conventional sequence of events after the click of a hyperlink ad. The ‎patent claims here do not address problems unique to the Internet, so DDR has no applicability.‎

Claim Construction of ‘587 Patent

Claim 1 is representative and provides:

A method of automatically organizing digital images obtained from a plurality of hard copy prints, each of said hard copy prints having an image thereon, comprising the steps of:

digitally scanning a plurality of hard copy prints that have been grouped into one or more categories, each category separated by an associated machine readable instruction form as to obtain a digital file of each of said images and digitally associating said one or more categories with said digital images in accordance with said associated machine readable instruction form executed by a computer;

storing said digital images files and associated categories on a digital storage medium; and producing a product incorporating images from one or more of said categories as required by a customer.

The parties dispute whether the “associated machine readable instruction form” must be in a hard-copy format and scanned into the computer along with the hard-copy pictures, or whether a wholly electronic embodiment of the instruction form could satisfy the claim limitation. Intellectual Ventures argued that the machine readable instruction forms need not be in a hard-copy format. Capital One argued that the forms must be in a hard-copy format. In the claim construction order, the district court concluded “that the ‘machine readable instruction form’ refers to a hard copy form that is presented and scanned along with the hard copy images and which physically separates the categories of images, as defined by the user.”

The panel concludes that the court was correct to require that the machine readable instructions be in hardcopy for three reasons. First, the language of the claim itself suggests that the machine readable instructions are used to physically separate the hard-copy prints. Second, the specification consistently describes the machine readable instruction form as a hard-copy document and thus in no way contradicts the plain meaning of the claim language. Third, the prosecution history suggests that the machine readable instructions must be in hard copy. In light of the claim language, the specification, and the prosecution history, a person of ordinary skill in the art would have understood the claim as requiring the machine readable instruction form to be in a hard-copy format. The district court’s claim construction on this issue was correct.

In re Cuozzo Speed Technologies, LLC , Fed. Cir. Case 2014-1301 (July 8, 2015)

The Circuit reissues its February 4, 2015 decision that was discussed in our weekly report that same day. The portion of that report discussing the issue of whether BRI should be applied in IPR proceedings is reproduced below. Since Judge Dyk wrote the majority’s opinion in that original decision and Judge Newman wrote in dissent, and they similarly wrote in opposition to and in favor of rehearing en banc, their latest offering in response to the petition for rehearing en banc will not be analyzed. The issues are the same; that is, in support of BRI: Congress conveyed rulemaking authority to the PTO to prescribe regulations governing IPR and in the absence of congressional intent to abrogate the historically-grounded BRI standard, we should not adopt a different standard without congressional authority. In opposition to BRI: Post grant proceedings were intended to be a surrogate for district court validity determinations and the majority fails to explain why Congress or anyone else would have thought it desirable or necessary to construe the claims of an issued patent any differently in IPR than in the district courts.

Pertinent Portion of February 4, 2015 Report

The majority holds that it lacks jurisdiction to review the PTO’s decision to institute Inter Partes Review. Holding for the first time that the “broadest reasonable interpretation” (BRI) standard of claim construction applies to Inter Partes Reviews, the majority affirms the Board’s claim construction under the BRI standard, its obviousness determination, and its denial of the patentee’s motion to amend. Judge Newman dissents, arguing that these rulings are contrary to the intent of the AIA.

The BRI Standard Should Be Applied in IPR’s.

The AIA created IPR, but the statute on its face does not resolve the issue of whether the broadest reasonable interpretation (BRI) standard is appropriate in IPR’s; it is silent on that issue. However, the statute provides that “[t]he Director shall prescribe regulations,” inter alia, “setting forth the standards for the showing of sufficient grounds to institute . . . review,” and “establishing and governing inter partes review. . . . and the relationship of such review to other proceedings . . .” 35 U.S.C. § 316(a)(2), (a)(4). Pursuant to this authority, the PTO has promulgated 37 C.F.R. § 42.100(b), which provides that “[a] claim in an unexpired patent shall be given its broadest reasonable construction in light of the specification of the patent in which it appears.” 37 C.F.R. § 42.100(b). Cuozzo argues that the PTO lacked authority to promulgate § 42.100(b) and that the BRI standard is inappropriate in an adjudicatory IPR proceeding.

Before addressing the scope of the PTO’s rulemaking authority, the majority considers the history of the BRI standard and the bearing of that history on the interpretation of the IPR statute. The BRI standard has been applied by the PTO and its predecessor for more than 100 years in various types of PTO proceedings. This court has approved of the BRI standard in a variety of proceedings, including initial examinations, interferences, and post-grant proceedings such as reissues and reexaminations. Indeed, that standard has been applied in every PTO proceeding involving unexpired patents. Applying the BRI standard reduces the possibility that, after the patent is granted, the claims may be interpreted as giving broader coverage than is justified.

There is no indication that the AIA was designed to change the claim construction standard that the PTO has applied for more than 100 years. Here, Congress in enacting the AIA was well aware that the BRI standard was the prevailing rule. It can therefore be inferred that Congress impliedly adopted the existing rule of adopting the BRI.

Cuozzo argues that judicial or congressional approval of the BRI standard for other proceedings is irrelevant here because the earlier judicial decisions relied on the availability of amendment, and the AIA limits amendments in IPR proceedings. But IPR proceedings are not materially different in that respect. Section 316(d)(1) provides that a patentee may file one motion to amend in order to “[c]ancel any challenged patent claim” or [f]or each challenged claim, propose a reasonable number of substitute claims,” 35 U.S.C. § 316(d)(1), though “[a]n amendment . . . may not enlarge the scope of the claims of the patent or introduce new matter,” id. § 316(d)(3). The PTO regulations provide that “[a] patent owner may file one motion to amend a patent, but only after conferring with the Board.” 37 C.F.R. § 42.221(a). “The presumption is that only one substitute claim would be needed to replace each challenged claim, and it may be rebutted by a demonstration of need.” Id. § 42.221(a)(3). The statute also provides that “[a]dditional motions to amend may be permitted upon the joint request of the petitioner and the patent owner. . . . .” 35 U.S.C. § 316(d)(2). “A motion to amend may be denied where” the amendment either “does not respond to a ground of unpatentability involved in the [IPR] trial” or “seeks to enlarge the scope of the claims of the patent or introduce new subject matter.” 37 C.F.R. § 42.221(a)(2).

Although the opportunity to amend is limited in the IPR setting, it is nonetheless available. The fact that the patent owner may be limited to a single amendment, may not broaden the claims, and must address the ground of unpatentability, is not a material difference. Nor is the fact that IPR may be said to be adjudicatory rather than an examination. Interference proceedings are also in some sense adjudicatory. In any event, Congress in enacting the AIA was aware of these differences in terms of amendments and adjudication and did not provide for a different standard than the BRI standard. The majority concludes that Congress implicitly adopted the broadest reasonable interpretation standard in enacting the AIA.

Even if we were to conclude that Congress did not adopt the BRI standard in enacting the AIA, § 316 provides authority to the PTO to conduct rulemaking. The regulation here presents a reasonable interpretation of the statute. The PTO has long applied the BRI standard in other proceedings, suggesting that a BRI standard is appropriate in IPRs. Even if the BRI standard were not incorporated into the IPR provisions of the statute, the standard was properly adopted by PTO regulation.

Judge Newman’s Dissent

In her dissent, Judge Newman provides a discussion as to how the majority’s rulings are contrary to the legislative purpose of the AIA. First, she notes that the AIA established the IPR system for the purpose of “providing quick and cost effective alternatives to litigation.” This purpose was achieved by providing a new adjudicatory proceeding in the PTO, whereby a newly formed Patent Trial and Appeal Board (PTAB) serves as a surrogate for district court litigation of patent validity. The goal is improved service to technology-based innovation, and thus to the nation. According to Judge Newman, the majority thwarts the statutory plan in several ways.

First, the panel majority holds that the PTAB, in conducting its adversarial proceedings, need not and should not apply the same legal and evidentiary standards as would apply in the district court. Instead, the panel majority authorizes and requires treating the claims of an issued patent in the same way as pending claims in the patent application stage, where claims are subject to the “broadest reasonable interpretation” examination protocol. The panel majority thus precludes achieving review of patent validity in Inter Partes Review comparable to that of the district courts, where validity is determined based on the correct claim construction, not an artificially “broadest” construction.

The purpose of Inter Partes Review is to “convert” inter partes reexamination “from an examinational proceeding to an adjudicative proceeding.” By refusing to apply to Inter Partes Review the procedural and substantive law of the district courts, the panel majority defeats the legislative purpose, for the PTO tribunal cannot serve as a surrogate for district court litigation if the PTAB does not apply the same law to the same evidence.

Celgard, LLC v. SK Innovation Co., Ltd. , Fed. Cir. Case 2014-1807 (July 6, 2015)

Celgard is a developer and manufacturer of battery membranes used to separate chemical cell components in lithium-ion batteries, preventing contact between the positive and negative electrodes. The technology covered by Celgard’s ‘586 patent is used in rechargeable batteries in several emerging industries, including electronic vehicles (“EV”) and consumer electronic (“CE”) devices such as laptops and cellular phones. Celgard is headquartered in Charlotte, North Carolina.

SKI mainly supplies battery separators to third-party manufacturers, but also manufactures batteries that include its separators. SKI’s principal place of business is in Seoul, Korea. All of SKI’s design, manufacturing, and sales operations are based in Korea.

Celgard sued SKI for infringement of the ‘586 patent in the Western District of North Carolina. Celgard sought to establish jurisdiction based on allegations that SKI purposefully directed activities at the forum state through sales and offers for sale of its accused separators to residents of North Carolina. SKI moved to dismiss the complaint for lack of personal jurisdiction on the basis of an absence of evidence that SKI ever sold or offered for sale the accused products in North Carolina.

Applicable Law

We review a district court’s determination on personal jurisdiction without deference, applying our own law when a patent question exists. Grober v. Mako Prods., Inc., 686 F.3d 1335 (Fed. Cir. 2012). Our determination of whether a defendant is subject to specific personal jurisdiction in the forum state involves two inquiries: first, whether the forum state’s long arm statute permits service of process and, second, whether the assertion of jurisdiction is consistent with due process. Elecs. for Imaging, Inc. v. Coyle, 340 F.3d 1344 (Fed. Cir. 2003).

Due process requires that the defendant have sufficient “minimum contacts with the forum state such that maintenance of the suit does not offend traditional notions of fair play and substantial justice.” Int’l Shoe Co. v. Washington, 326 U.S. 310 (1945). We determine whether the due process requirement for specific personal jurisdiction is met by considering (1) whether the defendant purposefully directed its activities at residents of the forum state, (2) whether the claim arises out of or relates to the defendant’s activities with the forum state, and (3) whether assertion of personal jurisdiction is reasonable and fair. The plaintiff bears the burden of affirmatively establishing the first two elements of the due process requirement. If the plaintiff meets its burden, the burden shifts to the defendant to prove that personal jurisdiction is unreasonable.

Celgard’s Purposeful-Direction Theory

Celgard’s purposeful-direction theory of jurisdiction is based on its contention that SKI has purposefully directed its activities to North Carolina residents through a joint venture, allegedly with Kia, to develop batteries for the 2015 Kia Soul EV. Celgard argues that the joint venture demonstrates the 2015 Kia Soul EV was actively marketed in North Carolina. This marketing activity is allegedly shown by the advertisements of the two Kia dealers that suggest that the Soul EV would be coming soon to dealerships in North Carolina. According to Celgard, these ads constitute offers for sale under 35 U. S. C. § 271(a), supporting jurisdiction in North Carolina. Celgard contends that it is irrelevant that the ads were placed by the dealers, and not by SKI, because when a defendant exploits the “typical industry medium” to reach customers, it has purposefully directed activities to the forum, establishing jurisdiction.

Personal jurisdiction cannot be established based on any SKI activity directed toward North Carolina. There is no record evidence that SKI purposefully directed its activities, related to the Kia Soul EV or otherwise, toward the forum state. Thus, we next consider whether the activities of another party, which acted on SKI’s behalf, could be imputed to SKI, and thus establish jurisdiction over SKI

For purposes of specific personal jurisdiction, the contacts of a third-party may be imputed to the defendant under either an agency or alter ego theory. In order to establish jurisdiction under the agency theory, the plaintiff must show that the defendant exercises control over the activities of the third-party. In Red Wing Shoe, we rejected the notion that an agency relationship existed between the defendant and its licensees because the defendant did not exercise control over the licensees. Red Wing Shoe Co., Inc. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355 (Fed. Cir. 1998). Alternatively, a plaintiff may establish personal jurisdiction under an alter ego theory.

Here, Celgard does not point to any evidence on the record establishing that the dealers were operating either as SKI’s agents or alter egos. The record does not show any attempt by SKI to purposefully direct or control the activities of the dealers in North Carolina. As such, Celgard has not shown the requisite control for jurisdiction to be premised on the acts of agents. Similarly, Celgard has not alleged facts sufficient to base jurisdiction on the acts of an alter ego. The joint venture agreement is insufficient to establish jurisdiction under an alter ego theory because the agreement is between SKI and KMC, a company that is based in Korea. While KMC is the parent company of KMA, there is no evidence that KMA or the two Kia dealers were aware of the joint venture agreement, or that the advertisements were in any way related to the joint venture.

We conclude that the posting of the internet pages by the North Carolina dealers were unilateral actions taken by third parties unrelated to SKI. The Supreme Court has forbidden the exercise of jurisdiction over a defendant on the basis of unilateral acts of third-parties. In Hanson v. Denckla, the Court explained that the “unilateral activity of those who claim some relationship with a nonresident defendant cannot satisfy the requirement of contact with the forum State” because it is essential that the defendant take actions purposefully availing him or her of the privileges and benefits of the forum state. 357 U.S. 235 (1958). This purposeful-availment requirement is tied to the principle that a defendant should be able to reasonably foresee litigation in the forum state. Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985). Indeed, the purposeful availment requirement ensures that a foreign defendant will not be unexpectedly “haled into a jurisdiction solely as a result of the unilateral activity of a third person.” Thus, the advertising activities of the Kia dealers do not support the exercise of jurisdiction over SKI in North Carolina.

Celgard has failed to allege facts that allow it to meet its burden under a purposeful-availment theory of jurisdiction. We hold that the district court was correct in declining to exercise jurisdiction over SKI based on any activity of SKI directed at the forum state, the joint agreement between SKI and KMC, or the unilateral actions of the two Kia dealers.

Celgard’s Stream-of-Commerce Theory

Celgard asserts an alternative, stream-of-commerce theory of jurisdiction over SKI. This theory is based on SKI’s participation with CE manufacturers to use their established distribution channels to avail SKI of the North Carolina market. Celgard points out that neither this court, nor the Supreme Court, has decided whether stream-of-commerce jurisdiction requires merely placing goods into the stream of commerce with the expectation that they would be purchased in the forum state, or if “something more” is required, i.e., the purposeful direction of activities toward the forum. However, we do not need to resolve the question, as the results of the case are the same under either formulation of the stream-of-commerce test.

Celgard’s evidence fails to show that SKI’s separators actually have been found in North Carolina, much less that SKI can foresee that its separators will make their way there. Celgard’s inability to show that SKI can foresee that its separators will make their way to North Carolina also necessarily implies that SKI did not also have “something more,” a purposeful availment of the privileges and laws of North Carolina.

The district court correctly declined to exercise personal jurisdiction over SKI under either a purposeful direction theory or a stream-of-commerce theory. We note that Celgard is not without remedy, as SKI consented to be subject to jurisdiction in New York.

SFA Systems, LLC v. Newegg Inc. , Fed. Cir. Case 2014-1712 (July 10, 2015)

SFA brought this action against multiple accused infringers, including Newegg in the Eastern District of Texas. After the district court issued its claim construction order, SFA voluntarily dismissed the suit with prejudice. Newegg moved for attorneys’ fees under § 285, but because the panel finds that the court did not abuse its discretion in denying Newegg’s § 285 motion, the case is affirmed.

Background

SFA filed this action against multiple online retailers, including Newegg, alleging infringement of a ‘525 patent. A little over two years later, after some parties settled with SFA and were dropped from the suit, SFA filed a separate suit against the remaining accused infringers, this time asserting the recently-issued ‘341 patent. The court issued two separate Markman rulings, both of which sided with SFA. The court also denied Newegg’s summary judgment motion that the ‘341 patent was indefinite. The next day, SFA moved to dismiss the case against Newegg with prejudice under Fed. R. Civ. P. 41(a), and covenanted not to sue Newegg on the patents at issue. Newegg filed motions to recover its costs and fees.

Before the district court acted on Newegg’s motions for costs and fees, the Supreme Court decided Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014). While finding that Newegg was the prevailing party and thus granting Newegg’s bill of costs, the district court denied Newegg’s § 285 motion for attorneys’ fees. The district court cited Octane Fitness, finding that, “even under the new, lower standard for an exceptional case designation, Newegg has provided no evidence that this case stands out from others with respect to the substantive strength of SFA’s litigating position.” The court explained that Newegg’s primary complaint was that SFA filed many suits against many defendants, showing a pattern of abusive and vexatious litigation to extract settlements. The court concluded, however, that “the fact that SFA has filed several lawsuits against numerous defendants is insufficient to render this case exceptional. In many cases, patent infringement is widespread and the patent owner may be forced to revert to widespread litigation against several infringing parties to enforce its intellectual property rights.”

The Issue is Whether the District Court Abused its Discretion in Denying Fees

Under 35 U.S.C. § 285, a “court in exceptional cases may award reasonable attorney fees to the prevailing party.” In Octane Fitness, the Supreme Court clarified that an “exceptional” case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position or the unreasonable manner in which the case was litigated. On appeal, we review the district court’s exceptional case determination under § 285 for an abuse of discretion. Highmark Inc. v. Allcare Health Mgmt. Sys., 134 S. Ct. 1744 (2014).

Newegg argues that the district court erred in finding that this case was not exceptional because: (1) the district court’s analyses on claim construction and indefiniteness were wrong and, under the correct analyses, SFA’s lawsuit is meritless; and (2) SFA maintained and filed this lawsuit in bad faith for the improper purpose of obtaining a nuisance value settlement (“the unreasonable manner in which the case was litigated”). Although, under Octane Fitness, we ultimately consider these issues together under the “totality of the circumstances,” it helps to first parse Newegg’s arguments because Newegg argues that we should apply different standards of review to them.

A. “The substantive strength of a party’s litigating position”

In Octane Fitness, the Supreme Court made clear that it is the “substantive strength of the party’s litigating position” that is relevant to an exceptional case determination, not the correctness or eventual success of that position. Importantly, this means that we need not rule on the correctness of the district court’s decision on all underlying issues of law in reviewing an exceptional case determination. We need only determine whether the court abused its discretion when it found that the party’s litigating position was not so meritless as to “stand out” from the norm and, thus, be exceptional. In this case, we conclude that the district court did not abuse its discretion in finding that SFA’s claim construction and indefiniteness positions did not stand out. Again, our holding is based on the district court’s evaluation of the strength of SFA’s litigating position, not on the correctness of the district court’s claim construction and indefiniteness orders. We express no opinion as to whether we ultimately would have affirmed those determinations.

B. “The unreasonable manner in which the case was litigated”

Newegg asserts that SFA brought this suit for the improper purpose of obtaining a nuisance value settlement. Newegg alleges that SFA dragged out the litigation to increase Newegg’s litigation costs and that SFA dismissed the suit as soon as it realized that Newegg was not going to settle. As evidence, Newegg submitted the settlement amounts that SFA received from previous accused infringers, which, according to Newegg, were all substantially below the cost of defending a patent litigation suit and below what SFA could have recovered in damages if it had prevailed in those actions. Newegg proffered no other evidence regarding SFA’s motivations.

Prior to Octane Fitness, in addition to the test for § 285 fees set out in Brooks Furniture Manufacturing, Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378 (Fed. Cir. 2005), we observed that a district court may declare a case exceptional based on unreasonable and vexatious litigation tactics, even where it finds the legal theories advanced not objectively baseless. And, although the Supreme Court rejected our Brooks Furniture test in Octane Fitness, it gave no indication that we should rethink our litigation misconduct line of § 285 cases. Indeed, the Supreme Court sanctioned a district court’s discretion to find a case exceptional based on “the unreasonable manner in which the case was litigated.” Accordingly, we conclude that, under Octane Fitness, the district court must consider whether the case was litigated in an unreasonable manner as part of its exceptional case determination, and that district courts can turn to our pre- Octane Fitness case law for guidance.

We agree with Newegg, accordingly, that a pattern of litigation abuses characterized by the repeated filing of patent infringement actions for the sole purpose of forcing settlements, with no intention of testing the merits of one’s claims, is relevant to a district court’s exceptional case determination under § 285. And, we agree with Newegg, moreover, that to the extent the district court’s opinion in this case can be read to discount the motivations behind a patentee’s litigation history, the district court was wrong. The problem with Newegg’s request that we reverse the exceptional case determination on these grounds, however, is its failure to make a record supporting its characterization of SFA’s improper motivations.

Newegg argued to the district court that SFA engaged in a vexatious litigation strategy based on evidence that: (1) SFA dismissed its claims against Newegg once it was faced with the prospect of a trial in which the merits of its claims would be tested; (2) SFA sued many defendants for infringement of the same patents; and (3) SFA frequently settled with prior defendants for relatively small amounts. On this record, we cannot say that the district court abused its discretion in finding that Newegg’s evidence was insufficient to show that SFA actually litigated this case in an “unreasonable manner.” Although SFA dismissed this suit after the court had ruled in its favor on claim construction and only six months before trial, Newegg presented no evidence that the dismissal was because SFA knew that Newegg was not going to settle. In fact, SFA continued to litigate the same patent in its suit against Amazon.com, Inc. (“Amazon”) with no guarantee of obtaining a settlement in that case.