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

December 8, 2017

Overview

Arctic Cat v. Bombardier deals with obviousness, patent marking, reasonable royalties, willfulness and enhanced damages. The panel affirms all of the district court’s rulings other than as to patent marking, which it remands for the district court to decide whether Arctic Cat met its burden of proving that it complied with the requirements of § 287(a) as to its licensee. In the CFRD appeal involving a patent licensing entity’s attack against Dish, Netflix and others’ systems for permitting video to be transferred from one computer to another, the panel affirms and reverses, and thus invalidates all of the asserted patent claims. In Inventor Holdings, the Circuit affirms the grant of attorney fees against a licensing entity that filed an infringement case prior to Alice, but then continued the case following Alice, even though its claims were clearly invalid under Alice and § 101. In so doing, the panel rejects Inventor Holdings’ argument that Alice did not really change § 101 analysis.

In a fourth precedential decision, which will not be individually discussed, the Circuit denies rehearing en banc in Nobelbiz v. Global Connect. The panel majority held that the district court erred by adopting a plain-and-ordinary-meaning construction for several non-technical terms, and by allowing the parties’ experts and counsel to make arguments to the jury about what those simple terms mean. A minority of the Circuit dissents from the decision denying rehearing, arguing that the majority erred by turning what is fundamentally a factual question for the jury regarding whether the accused systems infringe into a legal one for the court—and ultimately this court—to resolve. Read the full opinion.

Pete

Arctic Cat Inc. v. Bombardier Recreational Products, Inc.,Fed. Cir. Case 2017-1475 (December 7, 2017)

The Circuit affirms a district court determination of non-obviousness as to two patents directed to steering control systems for jet skis (otherwise known as personal water craft or “PWC”). The decision as to willfulness, trebling of damages, and royalties is also affirmed but the panel vacates the district court’s denial of JMOL as to patent marking, and remands the case for reconsideration of that issue. At issue on the appeal was the district court’s $47 million judgment and continuing royalties as to BRP’s Sea-Doo line of jet skis.

The patent claims are directed to a so-called off-throttle thrust reapplication system, which ensures that jet thrust continues as the operator goes into a turn even though the operatory backs off on the speed. This is because without thrust, the PWC tends not to turn as it would with the thrust continuing. BRP argued that its prior “Challenger” off-throttle thrust reapplication system for jet boats could have been applied to PWCs. To show that a skilled artisan would have been motivated to modify a PWC with its Challenger system, BRP relied on two prior art reports written by the Society of Automotive Engineers (“SAE”) suggesting the use of the Challenger system in a PWC. However, the SAE reports note that “additional new hazards can be envisioned with such a steering system,” including collisions “when inadvertent activation of restored thrust might occur close to other boats, swimmers or fixed objects.” In light of this, the panel holds that the jury’s determination that there was no motivation to make this particular combination is supported by substantial evidence.

As to objective considerations, Arctic Cat introduced a press release it issued after Captain Michael Holmes, chief of the U.S. Coast Guard Office of Boating Safety, rode and evaluated an Arctic Cat prototype incorporating the claimed invention. After his test ride, Captain Holmes stated: “I like it. It’s one of the most impressive innovations I’ve seen all year.” This provides substantial evidence to support the jury’s finding that industry press supports a determination of non-obviousness.

The jury also determined that the invention satisfied a long-felt need. BRP argued that that need had already been satisfied by a prior Challenger system, but the panel notes that the SAE report rejected that allegation, and BRP’s expert conceded at trial that despite a number of people working to address the off-throttle steering problem, there “was not a publicly available personal watercraft with throttle reapplication” before Arctic Cat’s invention. This is substantial evidence to support the jury’s fact finding about long-felt need, which also weighs in favor of the non-obviousness.

In deciding the ultimate issue of obviousness, the panel notes that, even with a de novo review, it cannot reverse the jury’s presumed fact findings regarding motivation to combine or expectations of success. In light of these fact findings along with the objective indicia of non-obviousness, the panel sees no error in the conclusion that BRP failed to prove that the asserted claims would have been obvious.

The panel agrees with BRP that Arctic Cat failed to carry its burden of proving that it complied with the marking statute. Pursuant to 35 U.S.C. § 287(a), a patentee who makes or sells a patented article must mark his articles or notify infringers of his patent in order to recover damages. A patentee’s licensees must also comply with § 287, because the statute extends to “persons making or selling any patented article for or under [the patentee].” Recognizing that it may be difficult for a patentee to ensure his licensees’ compliance with the marking provisions, the Circuit has held that where third parties are involved, courts may consider “whether the patentee made reasonable efforts to ensure compliance with the marking requirements.”

Here, Arctic Cat entered into a paid up license with Honda under two earlier Arctic Cat patents, and any subsequently-issued patents that cover Arctic Cat’s controlled thrust steering systems. Honda sold PWCs under the patents in suit and made no effort to ensure that those products were marked. Nonetheless, the jury determined that damages began well prior to the time BRP received notice of the infringement.

The only dispute between the parties as to marking is whether any of the Honda PWCs was covered by the patent claims at issue. The panel notes that there is a split in the district courts as to the handling of the burden issue, but the panel holds that an alleged infringer who challenges the patentee’s compliance with § 287 bears an initial burden of production to articulate the products it believes are un-marked “patented articles.” But this is “a low bar.” Once the alleged infringer meets its burden of production, the patentee bears the burden to prove the products identified do not practice the patented invention.

BRP identified fourteen Honda PWCs from three versions of its Aquatrax series sold between 2002 and 2009. BRP’s expert testified that if BRP’s system practiced the patents, so did Honda’s throttle reapplication system. This was sufficient to satisfy BRP’s initial burden of production. On remand, Arctic Cat must establish the Honda PWCs do not practice the asserted patents to recover damages under the constructive notice provisions of § 287.

As to damages, the panel rules that the district court did not abuse its discretion in admitting the testimony of Arctic Cat’s expert. BRP had an opportunity to cross examiner the expert at trial with any contrary reasonable royalty arguments it had. Similarly with respect to the ongoing royalty award that was twice as high as the jury rate, the panel rejects BRP’s argument that the rate impermissibly covers its entire profit, and rules that the court did not abuse its discretion in its prospective award.

In denying BRP’s motion for judgment as a matter of law on willfulness, the district court found substantial evidence demonstrated that BRP knew about the patents before they issued, conducted only a cursory analysis of the patents, waited years before seeking advice of qualified and competent counsel, and unsuccessfully tried to buy the asserted patents through a third party. Under Halo, the panel rules that the court did not abuse its discretion in denying the JMOL motion or in trebling damages.

Finally as to willful infringement, the district court instructed the jury: “Arctic Cat must prove by clear and convincing evidence that BRP actually knew or should have known that its actions constituted an unjustifiably high risk of infringement of a valid and enforceable patent.” BRP argues this “should have known” standard contradicts Halo. But this Court addressed this issue in its 2016 WesternGeco decision and concluded:

Halo emphasized that subjective willfulness alone—i.e., proof that the defendant acted despite a risk of infringement that was “‘either known or so obvious that it should have been known to the accused infringer,’” can support an award of enhanced damages.

Thus, the court did not err in instructing the jury as BRP argues. 

Read the full opinion

CFRD Research, Inc. v. Matal, Fed. Cir. Case 2016-2198 , CFRD Research, Inc. v. Dish Network Corp., Fed. Cir. Case 2016-2298; Hulu LLC, NetFlix, Inc. and Spotify USA, Inc. v. CFRD Research, Inc., Fed. Cir. Case 2016-2437 (December 7, 2017)

This consolidated appeal of three related cases all involve inter partes reviews of CFRD’s ‘233 patent directed to a system for transferring video streaming from one cell phone or laptop to another. The panel affirms the Board’s invalidity rulings as to the Dish Network, NetFlix and Spotify appeals but reverses the Board’s upholding of the validity in the Hulu case because the Board applied a novelty analysis to the obviousness issue. Thus, these additional claims were also determined to be invalid..

The court held that the Board erred in ruling the claims at issue in the Hulu appeal to be valid in an analysis of obviousness that was similar to the test it applied in considering novelty. Specifically, although Hulu raised separate arguments as to obviousness, the Board performed limited fact-finding in its obviousness inquiry, only examining the level of ordinary skill in the art and then relying primarily on its determination that a patent to Bates did not anticipate the challenged claims. But the tests for anticipation and obviousness are different. Anticipation is a question of fact, while obviousness is a question of law based on underlying factual findings. Even if a reference’s teachings are insufficient to find anticipation, that same reference’s teachings may be used to find obviousness.

The panel reviews the claims and prior art in a very detailed but not very remarkable opinion other than its critical note to the Board that perhaps it should not have conducted three separate trials. According to the Board:

Given the repetitive nature of the issues we have considered across these three appeals, we question whether the Board could have managed these IPRs in a more efficient manner. The record does not reflect any attempt to consolidate these cases to enhance the efficiency of the Board’s examination of the grounds raised against the ’233 patent, even though the petitions were filed within two months of each other and the Board published its decisions to institute review of various claims offered by the petitioners at similar times. Each of these petitions challenged claim 1, along with various other claims, based on two sets of prior art that over- lapped over various parts of the proceedings. It is hard to see how the Director would not have been authorized under 35 U.S.C. § 315(d) to consolidate these matters.

Certainly, CFRD would have found the IPRs easier and less expensive to defend had they been consolidated into a single proceeding. 

Read the full opinion

Inventor Holdings, LLC v. Bed Bath & Beyond, Inc., Fed. Cir. Case 2016-2442 (December 8, 2017)

The Circuit affirms the grant of attorney fees to defendant Bed Bath & Beyond (“BBB”) in a case that was originally filed prior to the Supreme Court’s Alice decision. Shortly after Alice was decided, BBB moved for judgment on the pleadings based onAlice and § 101. The motion was granted and that decision was affirmed by the Circuit. BBB subsequently moved for attorney fees and the district court granted fees, ruling that Inventor Holdings (“IH”) should have realized, once Alice was decided, that its case was objectively without merit.

The claimed invention relates to a method of purchasing goods at a local point-of-sale system from a remote seller. In April 2014, IH sued BBB for infringement of the ’582 patent.Alice was decided by the Supreme Court the next month in May. After IH submitted its proposed claim constructions to the district court, BBB filed its § 101 motion. The district court awarded BBB its post-Alice attorney fees, including fees incurred during the appeal of the district court’s § 101 decision, in the amount of $931,903.45. The district court determined that this case was exceptional and the panel affirms, ruling that the court acted within the scope of its discretion based on the weakness of IH’s § 101 arguments and the need to deter similarly weak arguments in the future.

Under Alice, the claims of the ’582 patent are manifestly directed to an abstract idea, which the district court accurately described as “local processing of payments for remotely purchased goods.” The idea that a customer may pay for items ordered from a remote seller at a third-party’s local establishment is the type of fundamental business practice that, when implemented using generic computer technology, is not patent- eligible under Alice. Under Alice’s second step, the only components disclosed in the specification for implementing the asserted method claims are unambiguously described as “conventional.” Moreover, here, as in Alice, considering the method steps of the representative claims as an “ordered combination” reveals that they “amount to‘nothing significantly more’ than an instruction to apply [an] abstract idea” using generic computer technology. See Alice, (quoting Mayo).

IH argues that a “necessary prerequisite” to the district court’s ruling was that “Alice changed the law on § 101 and did so so clearly and definitively as to render the ’582 patent clearly invalid.” IH then argues that Alice did not fundamentally change § 101 law, noting that the Supreme Court applied the same test in Alice that it previously set out in Mayo. IH further argues that § 101 was, and is, an evolving area of law and that the § 101 inquiry in this case was therefore difficult.

The panel finds IH’s arguments to be without merit. First, as the district court correctly noted in its opinion, IH’s claims were “dubious even before the Alice decision” in light of, for example, Dealertrack and Bilski. Second, the panel holds thatAlice was a significant change in the law as applied to the facts of this particular case. Prior to Alice, the state of the law for computer- implemented business transaction inventions was less than clear, given the Circuit’s divided en banc opinion in CLS Bank v. Alice While the panel agrees with IH as a general matter that it was and is sometimes difficult to analyze patent eligibility under the framework prescribed by the Supreme Court in Mayo, there is no uncertainty or difficulty in applying the principles set out in Alice to reach the conclusion that the ’582 patent’s claims are ineligible.

It was IH’s responsibility to reassess its case in view of new controlling law. A party cannot assert baseless infringement claims and must continually assess the soundness of pending infringement claims. The district court did not abuse its discretion in awarding fees based on IH’s failure to reassess the weakness of its case under Alice and then confining the award to fees accrued after the Alice decision issued.

Finally, the panel rejects IH’s argument that the district court abused its discretion in awarding appellate attorney fees. In its seminal 2014 Therasense case dealing with violation of the duty of disclosure, the Circuit noted that § 285 does not bar the trial court from awarding fees for the entire case, including any subsequent appeals.” Citing Alice, the opinion notes that the district court “lived with the case over a prolonged period of time,”and was in the best position to award fees as an initial matter for the entire case, including the § 101 appeal. 

Read the full opinion

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