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

June 9, 2017

Overview

Six precedential patent cases decided by the Circuit this week dealt with personal jurisdiction in DJ actions, construction of means plus function claim language, the definition of what constitutes a CBM patent, the issue of whether a patent infringement action “arises under” a distribution agreement such that the matter is subject to arbitration, and the appropriateness of fee awards under § 285.  To avoid overwhelming our readers (and our writers), today’s Credit Acceptance v. Westlake affirming a successful § 101 challenge in a Covered Business Method patent action will be discussed in our next report. I am heading out tomorrow for a two week cycling trip so our next report is not likely to be circulated until my return.

Thanks to my colleague Jason Wrubleski for his help with this week’s report. 

Pete

New World Int’l v. Ford Global Technologies, Fed. Cir. Case 2016-2097 (June 8, 2017)

The Circuit affirms the dismissal of a declaratory judgment action against FGTL, a Michigan-based licensing affiliate of Ford, for lack of personal jurisdiction even though FGTL had entered into an exclusive licensing arrangement that required FGTL to defend that licensee, perhaps even in Texas, under certain circumstances.

FGTL is a wholly owned subsidiary of Ford Motor Company that is incorporated in Delaware, headquartered in Michigan, and does no business in Texas. FGTL owns, manages, and licenses Ford’s intellectual property, which includes two design patents to a vehicle hood exterior and a vehicle head lamp, the two patents challenged in a DJ action filed by New World. FGTL exclusively licenses these two patents to LKQ, a company that does business in all 50 states, including Texas. The licensing agreement states that LKQ is an independent contractor, that neither company has the right to act as an agent or to bind the other, and is not to represent itself as a licensee of Ford or FGTL. Of principal interest in the case is the relationship between FGTL and LKQ as to infringement claims against third parties. LKQ must notify FGTL if it learns of an infringement. FGTL can determine what action, if any, it takes to enforce the Ford design patents but FGTL is not to unreasonably refuse an enforcement request by LKQ. The license agreement also provides that FGTL will indemnify LKQ for any design patent suits against LKQ initiated by third parties.

FGTL sent New World two cease and desist letters in 2013, informing New World that LKQ was the exclusive licensee and that New World was infringing the patents. LKQ followed up with one letter, noting that it could review New World’s inventory in order to determine the most prudent disposal method. In January of 2015, FELT sued New World for infringement of nine patents, including the two design patents at issue here. FGTL later amended the complaint to delete the two patents.

In April of 2015, New World filed the present action, asserting specific jurisdiction, and the district court granted FGTL’s motion to dismiss. New World moved for reconsideration and to file an amended complaint. The court denied reconsideration and ruled that the request to amend the complaint was untimely.

Citing International Shoe, the Circuit first notes that for there to be personal jurisdiction, the nonresident defendant must have “certain minimum contacts with the forum such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.” According to the Supreme Court’s Burger King case, for minimum contacts in the context of specific jurisdiction, the plaintiff must show that the defendant “has purposefully directed his activities at residents of the forum, and that the litigation results from alleged injuries that arise out of or relate to those activities.”

If those minimum contacts are sufficient, the defendant may point to other factors “to determine whether the assertion of personal jurisdiction would comport with fair play and substantial justice.”

According to the panel, the Circuit has held that it is improper to predicate personal jurisdiction on the act of sending ordinary cease and desist letters into a forum, without more. However, other activities by the defendant, in conjunction with cease and desist letters, may be sufficient. One such activity that this court has recognized may meet the minimum contacts requirement is the grant of an exclusive license to a licensee that resides or regularly does business in the forum. However, the mere existence of an exclusive license does not support a finding of specific jurisdiction. For example, a license that establishes no relationship between a patent holder and a licensee beyond the payment and receipt of royalty income is not sufficient, because a declaratory judgment action does not typically “arise from or relate to” a patent holder’s efforts to license or commercialize its patent. On the other hand, a license that obligates the patent holder to defend or enforce the patent may be sufficient to establish specific personal jurisdiction, because a declaratory judgment action typically arises from the patent holder’s actions to enforce or defend its patent in the forum.

The panel quickly dismisses New World’s arguments that the fact that it is an exclusive license with indemnification provisions meets the requirements of specific jurisdiction but then turns to New World’s argument that the enforcement provisions subject FGTL to jurisdiction. The Circuit also rejects this latter argument because FGTL has not assumed a meaningful obligation to enforce or defend the Ford design patents under the license provisions regarding infringement suits brought against third parties. FGTL retains “the right to determine what action, if any, is to be taken in each such instance, but shall not unreasonably refuse a request by LKQ to enforce the Ford Design Patents against allegedly-infringing use in conflict with LKQ’s rights under the Agreement.” There is no question that FGTL retains control over how to handle enforcement of the patent against infringing third parties. Nor has New World pointed to any additional activities in the forum beyond the license that would give rise to specific jurisdiction.

New World argues that the district court’s denial of its motion to amend the complaint to add new allegations in support of personal jurisdiction was an abuse of discretion. However, the panel notes that New World’s explanation for seeking leave to amend was not the discovery of new evidence or anything similar. Rather, it believed its initial complaint was sufficient to establish jurisdiction, but that following the dismissal it wanted an opportunity to buttress its jurisdictional presentation. That rationale does not provide a basis for concluding that the district court abused its discretion. The amendment was untimely, and New World offered no good reason for its untimeliness. 

Comment:   Although not mentioned in the opinion, this case can be distinguished from the February decision in Xilinx v Papst, 848 F.3d 1346 (Fed. Cir. 2017), where the Circuit reversed the dismissal of a DJ action based upon lack of personal jurisdiction over a German NPE because the German company had traveled into the forum in an attempt to negotiate a license with the DJ plaintiff and had filed seven other patent infringement cases in California. So even though cease and desist letters into the forum were not sufficient, in Xilinx there were “other activities” that justified the exercise of personal jurisdiction.  

Read the full opinion

Skky v. MindGeek, Fed. Cir. Case 2016-2018 (June 7, 2017)

The panel affirms an IPR determination of obviousness of all of the claims of a patent challenged by adult video providers MindGeek and Playboy. At issue on appeal was (1) the Board’s conclusion that “wireless device means” does not invoke § 112 ¶ 6 and does not require multiple processors; (2) various aspects of the merits of the obviousness determination; and (3) the Board’s decision not to strike MindGeek’s reply brief before the Board.

The claims are directed to a method for delivering audio and/or visual files to a wireless device. They include the term “wireless device means” but follow that with significant structural language. In determining whether a claim term invokes § 112 ¶ 6, “the essential inquiry is not merely the presence or absence of the word ‘means’ but whether the words of the claim are understood by persons of ordinary skill in the art to have a sufficiently definite meaning as the name for structure.” Williamson v. Citrix. This is an important issue, particularly in an IPR, as it determines whether the claim is limited to the structure and materials described in the patent or whether the claims are given their “broadest reasonable interpretation.” The panel rules that “wireless device means” does not invoke § 112 ¶ 6 because “wireless device” is “used in common parlance . . . to designate structure.” Skky’s arguments to the contrary are, in effect, an attempt to improperly import limitations from the written description into the claims.  

Skky argues that even if “wireless device means” does not invoke § 112 ¶ 6, the term still should be construed to require multiple processors. Skky contends that the written description contains several embodiments requiring a cell phone, which includes a processor, attached to an accessory with its own processor, and that the software embodiment does not fall within the claim language. Skky argues that the prosecution history also supports this requirement, based on statements made during prosecution and because, as the claims were allowed over Rolf, they must cover something more than the wireless device with a single processor disclosed in Rolf.

Although the written description contains embodiments where the wireless device contains multiple processors, it also includes the software embodiment, in which the wireless device contains a single processor. The argument that the invention requires a “specialized processor” is refuted by the patent’s express disclosure that the invention may be practiced using “a conventional cellular phone without the need for additional hardware.” Accordingly, the Board did not err in concluding that “wireless device means” does not require multiple processors or a specialized processor.

The panel easily dismisses MindGeek’s arguments as to nonobviousness, finding substantial evidence to support the Board’s determinations. MindGeek’s arguments that the Board abused its discretion in failing to strike Skky’s reply brief are rejected as well, the panel noting that Skky’s arguments were largely responsive to MindGeek’s arguments and, to the extent they weren’t, MindGeek was permitted by the Board to file a surreply to address those issues. 

Read the full opinion

Secure Axcess v. PNC Bank, Fed. Cir. Case 2016-1353 (June 6, 2017) Petition for Panel and En Banc Rehearings Denied

In a divided panel decision on February 21, 2017, the Circuit continued to further restrict what constitutes a Covered Business Method patent, ruling that a system for authenticating a web page does not constitute a CBM patent. Over the dissent of Judge Lourie, the majority rejected the patentee’s argument and the Board’s holding that its history of suing financial institutions for infringement should be considered in evaluating whether or not the patent qualifies as a CBM patent. The definition of CBM patent is important because CBM proceedings can challenge patents on indefiniteness and patentable subject matter while IPRs are limited to challenges based on printed prior art. See our full report on the panel decision here.

In a 6-5 vote, the majority denying the petition rules that the panel opinion adopts a resolution that soundly resolves an ambiguity in the statutory language and is consistent with the Circuit’s precedents and with a number of Board decisions. In these circumstances, further review of the CBM issue would be a poor use of judicial resources. The program is now more than halfway through its specified eight-year life, and is set to expire in a little over three years. The program has consistently been small in scale, and the issue presented in this case has arisen only rarely. Although the statute grants relevant rulemaking authority to the PTO, the legal issue comes to this court unaccompanied by any regulation except one that merely incorporates the statutory language. Should an extension of the CBM program in some form be deemed desirable, congressional redrafting is a better process through which to address the issues raised by the statute’s current language.

The dissenters believe that the panel’s decision requiring that the claim must include a financial activity is contrary to the statutory language, congressional intent, and the Circuit’s case law. According to the dissent, although not every error by a panel is enbancable, this statutory interpretation question certainly satisfies the requirements for en banc review. In particular, both the Federal Rules of Appellate Procedure and the Circuit’s Internal Operating Procedures (“IOPs”) provide that en banc review is available for cases that involve “a question of exceptional importance.” Maintaining uniformity of decisions is also an appropriate basis to grant rehearing en banc. There may be many patents whose identity as a CBM patent either will be at issue during the life of this statutory provision in proceedings before the Board, or would have been at issue under the correct statutory interpretation.

Read the full opinion

Evans v. Building Materials Corporation of America, Fed. Cir. Case 2016-2427 (June 5, 2017)

Roof N Box (“RNB”) and Building Materials Corp. d/b/a GAF-ELK (“GAF”) entered into an agreement under which GAF would promote RNB’s “Roof N Box” three-dimensional roofing model, designed to be used by roofers to display roofing components. The agreement contained a provision that required the parties to submit disputes “arising under” the agreement to arbitration. GAF terminated the agreement and RNB brought the present suit based on GAF’s activities in marketing its own product that competes with the Roof N Box product. The complaint alleged design patent infringement as well as trade dress infringement and unfair competition. The district court denied GAF’s motion to dismiss or stay, based on the agreement’s arbitration provision, and the Circuit affirms.

The parties initially disagree as to the Fourth Circuit standard the district court should have applied in determining whether to decide the issue of arbitrability. The Circuit found it unnecessary to resolve this issue, as even under the lower standard, the panel agrees with the district court that GAF’s assertion of arbitrability is wholly groundless. 

The arbitration provision reaches only claims “arising under” the 2009 agreement. Such “arising under” language is narrower in scope than language, such as “relating to,” under which a claim may be arbitrable if it has a “significant relationship” to the contract, regardless of whether it arises under the contract itself. The first three counts of the complaint present claims for patent infringement, trade dress infringement, and unfair competition related, not to GAF’s carrying out of its obligations established by the 2009 agreement, but rather to GAF’s making and selling of its own competing roofing products. According to the panel, those claims do not involve any issue “related to the performance or interpretation of the contract itself.” Nor are the claims similar to those alleging tortious interference or other agreement-dependent wrongs, which courts have held to be covered by similarly worded arbitration provisions. Those counts of the complaint are so plainly outside the arbitration provision that a contrary argument is wholly groundless.

Other arguments made by GAF were either waived by being presented only in its reply brief and at oral argument, or were waived by not being presented to the district court.

Read the full opinion

Checkpoint Systems, Inc. v. All-Tag Security S.A., Fed. Cir. Case 2016-1397 (June 5, 2017) 

Applying the Supreme Court’s Octane Fitness standard, the Circuit reverses a $10 million award of attorney fees, interest and expenses under § 285, finding that the district court had abused its discretion in awarding fees where the charge of infringement was reasonable and the litigation was not brought in bad faith or with abusive tactics.

The case involved a patent directed to anti-theft tags manufactured in Europe and sold in the U.S.  A jury found the patent to be not infringed, invalid, and unenforceable.  The district court awarded fees based on plaintiff’s inadequate pre-filing investigation, its improper motivation in bringing suit, and its infringement expert’s “failure … to inspect the correct accused product.”  Specifically, the district court found that the pre-filing investigation inadequately relied on a European infringement decision on a counterpart patent; two infringement opinions “given years before filing”; that plaintiff had brought suit to interfere improperly with defendants’ business and to protect its own competitive advantage; and that plaintiff’s expert had examined tags manufactured in Switzerland, while the accused tags were made in Belgium.

In finding that plaintiff did not have an improper motive in bringing suit, the panel distinguishes cases in which plaintiffs had demonstrated a pattern of filing infringement lawsuits to force settlement with no intention of testing the merits of their claims.  The panel concludes that “motivation to implement the statutory patent right by bringing suit based on a reasonable belief in infringement is not an improper motive.”  While the panel did not opine directly on the sufficiency of plaintiff’s pre-filing investigation, it cites plaintiff’s European patent win and two infringement opinions—as well as the district court’s denial of defendant’s summary judgment motions and a Daubert challenge—as evidence showing plaintiff’s reasonable belief in infringement.

The panel also found the “exceptional case” determination to be unsupported by the fact that plaintiff’s expert’s infringement opinion had been based on a tag made in Switzerland, rather than Belgium.  The Switzerland tag was apparently fabricated by the same machines that manufactured the accused, Belgium-originated tags, and plaintiff’s expert report was in other respects reasonable given the available evidence.

Read the full opinion

Rothschild Connected Devices Innovations, LLC v. Guardian Protection Services, Inc., Fed. Cir. Case 2016-2521 (June 5, 2017)   

The district courts just can’t seem to get it right. Here the Circuit reverses the Eastern District of Texas’s failure to grant attorney fees after the patentee Rothschild dismissed its case accusing defendants (collectively “ADS”) of infringing a patent directed to mixing solids and liquids using the Internet to dictate the mixing ratios. Shortly after the action was filed, ADS filed a motion for judgment on the pleadings, arguing that claim 1 covered patent ineligible subject matter under § 101. At the same time, ADS sent Rothschild a notice pursuant to Rule 11 (a “safe harbor notice”) enclosing a motion for sanctions under the rule. In light of this, Rothschild voluntarily moved to dismiss its action but ADS opposed and filed a motion for fees pursuant to § 285, arguing that the case was devoid of merit and that Rothschild did not intend to test the merits of its claim. Instead, Rothschild filed this and over fifty other lawsuits against other defendants, alleging infringement by such far-fetched items as video cameras, coffee makers and horns.

The district court granted Rothschild’s motion to dismiss but denied ADS’s motion for attorney fees, holding that Rothschild’s decision to voluntarily withdraw its complaint within the Safe Harbor period is the type of reasonable conduct Rule 11 is designed to encourage, noting that ADS had not demonstrated that Rothschild failed to conduct a reasonable pre-suit investigation of the prior art and that the filing of other infringement suits did not alone make the case exceptional.

The panel holds that the district court clearly erred by failing to consider Rothschild’s willful ignorance of the prior art. In its safe harbor notice and cross-motion for attorney fees, ADS included prior art that purportedly anticipated claim 1. In response to ADS’s cross-motion, Rothschild admitted that it had not conducted an analysis of that, but nonetheless contended that Rothschild possessed a good faith belief that the patent is valid. Here the district court never examined the circumstances behind the inconsistencies in these contentions.

Rothschild asserts that, before filing the lawsuit, they made a good faith determination of infringement and validity and that they reviewed publicly available information regarding ADS’s products. However, since they did not provide examples of websites, product brochures, manuals, or any other publicly available information that they purportedly reviewed, the panel finds that the conclusory and unsupported statements have no evidentiary value.

Because Rothschild’s affidavits have no evidentiary value, the undisputed evidence regarding Rothschild’s vexatious litigation warrants an affirmative exceptional case finding here. In a concurring opinion, Judge Mayer wrote that he would have granted fees regardless of litigation conduct, given that the patent was clearly not directed to patentable subject matter, but the majority refused to go that far. 

The district court erred as a matter of law when it stated that an attorney fee award under § 285 would contravene the aims of Rule 11’s safe-harbor provision. Whether a party avoids or engages in sanctionable conduct under Rule 11(b) “is not the appropriate benchmark”; indeed, under Octane Fitness “a district court may award fees in the rare case in which a party’s unreasonable conduct—while not necessarily independently sanctionable—is nonetheless so ‘exceptional’ as to justify an award of fees.”

Read the full opinion

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