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

January 16, 2018

Overview

The Supreme Court is taking another patent case, granting certiorari in WesternGeco v. Ion. A divided panel of the Circuit had ruled that the plaintiff was not entitled to lost profits as a result of the sale of components of a patented invention from the U.S., knowing or intending that the components would be combined outside of the country. While § 271(f) provides for liability in such circumstances, the Circuit ruled that the presumption against extraterritorial application of U.S. laws should apply to restrict damages. Our report on the panel decision is found here.

In Wi-Fi One v. Broadcom, a majority of an en banc Circuit rules that, given the strong presumption in favor of judicial review, the court should hear appeals of the issue of whether an IPR request has been filed within the one year limitation of 35 U.S.C. § 315(b). In Finjan v. Blue Coat, the Circuit determines that claims directed to a system for identifying malware recite patentable subject matter, but finds no substantial evidence to support a finding of infringement as to one of the patents in suit or as to the jury’s reasonable royalty award of almost $40 million. In Advanced Video v. HTC, a majority of a split panel affirms dismissal for lack of standing where one of the inventors did not assign her interest in the patent, and an employment agreement stating that she “will assign” any invention did not effect an assignment.

In Exmark v. Briggs & Stratton, the Circuit reverses summary judgment of no invalidity because that ruling was based solely on the fact that the patent had been through multiple reexaminations involving the same prior art. The panel also determines that the district court abused its discretion as to willfulness and enhanced damages because its rulings do not comport with Halo, which focuses on whether the defendant developed its views about the prior art at the time of accused infringement or later when preparing for trial.

Thanks to my colleague Nika Aldrich for his help with this week’s report.

Pete Heuser

Wi-Fi One, LLC v. Broadcom Corp., Fed. Cir. Case 2015-1944 (January 8, 2018) (en banc)

The AIA provides that an IPR request must be served within one year of the time the real party in interest is served with a complaint for patent infringement. 35 U.S.C. § 315(b). Congress also provided that the Director’s determination whether to institute an inter partes review “shall be final and nonappealable.” § 314(d). The Circuit rules here that, given the strong presumption in favor of judicial review, the court should hear appeals of the issue of whether an IPR request has been filed within the one year limitation.  This decision overrules the 2015 Achates v. Apple case in which it was held that a § 315(b) time-bar determination is final and nonappealable.

In 2016 the Supreme Court decided Cuozzo, ruling that the Board’s decision to institute an IPR is not appealable. However, that decision dealt only with “an ordinary dispute” as to whether the evidence supports the grounds for the challenge to each claim. The en banc dissent in Wi-Fi One contends that the statutory language “is absolute and provides no exceptions,” but the majority opinion notes that the Cuozzo decision expressly left open the potential for review in certain circumstances.

In the present case, LM Ericsson filed a complaint in the Eastern District of Texas in 2010 against multiple defendants. A jury determined that the defendants infringed the patents in suit. Broadcom was never a defendant in that litigation. In 2013 Broadcom filed three IPR petitions involving the same patents. During the pendency of the IPRs, Ericsson transferred ownership of the patents to Wi-Fi One. In response to Broadcom’s petitions, Wi-Fi One argued that the IPRs were barred under § 315(b) because Broadcom was in privity with the defendants in the earlier litigation. Wi-Fi One attempted to take discovery regarding indemnity agreements, payments, and communications between Broadcom and the defendants, but its motion to compel that discovery was denied. The Board ruled the challenged claims unpatentable, noting that Wi-Fi One had not proven that Broadcom was in privity with the defendants. Because the panel concluded that Cuozzo did not implicitly overrule Achates, it held Wi-Fi’s time-bar challenges to be unreviewable, and affirmed.

In view of the en banc ruling that § 315(b) time-bar determinations are appealable, the case is remanded to the panel to determine the merits of Wi-Fi One’s time-bar appeal.

Comments: While this decision is limited to the appealability of time-bar determinations, it suggests that the Circuit may be willing to hear appeals of other issues arising in IPRs, such as whether all of the interested parties have been named, who is barred by estoppel from litigating validity issues at a later date or in another forum, whether a Board decision comports with due process, and whether the review is premised on a violation of § 112 (which is not a ground for invalidity in IPR proceedings). These latter two issues were noted by Justice Breyer in Cuozzo as potentially being available to be heard on appeal.

Read the full opinion

Finjan, Inc. v. Blue Coat Systems, Inc., Fed. Cir. Case 2016-2520 (January 10, 2018)

In a decision dealing with patentable subject matter, infringement and damage apportionment, the Circuit affirms-in-part and reverses-in-part a $40 million judgment as to patents directed to identifying and protecting against malware.

First as to patentable subject matter of the ’844 patent in suit, the panel cites its 2016 Enfish decision, noting that software-based innovations can make “non-abstract improvements to computer technology” and be deemed patent-eligible subject matter under Alice’s step one. Here, representative claim 1 recites:

  1. A method comprising: receiving by an inspector a Downloadable; generating by the inspector a first Downloadable security profile that identifies suspicious code in the received Downloadable; and linking by the inspector the first Downloadable security profile to the Downloadable before a web server makes the Downloadable available to web clients.

Blue Coat argued that a result, even an innovative result, is not itself patentable. However, the panel holds that here, the claims recite more than a mere result. Instead, they recite specific steps—generating a security profile that identifies suspicious code and linking it to a downloadable—that accomplish the desired result. The panel holds that the idea is non-abstract and there is no need to proceed to step two of Alice.

The panel next addresses the parties’ allegations regarding infringement, and finds that substantial evidence supports the jury’s verdicts as to two of the three patents. As to the ’968 patent, however, the panel rules that Blue Coat is entitled to JMOL of non-infringement. The sole asserted claim recites, among other things:

  1. A policy-based cache manager, comprising: …

a content evaluator, communicatively coupled with said memory, for determining whether a given digital content is allowable relative to a given policy, based on the content profile, the results of which are saved as entries in the policy index.

The panel agrees with Blue Coat that Finjan failed to introduce substantial evidence that the accused products implement the claimed “policy index.”

With respect to damages, the panel agrees with Blue Coat that, in calculating a royalty base, Finjan failed to apportion damages to the infringing functionality as to the ’731 and ’633 patents. According to the panel: “The ultimate combination of royalty base and royalty rate must reflect the value attributable to the infringing features of the product, and no more.”

WebPulse, the infringing product, is a cloud-based system that associates URLs with over eighty different categories, including pornography, gambling, shopping, social networking, and “suspicious”—which is a category meant to identify potential malware. At trial, Finjan attempted to tie the royalty base to the incremental value of the infringement by multiplying WebPulse’s total number of users by the percentage of web traffic that passes through DRTR, the WebPulse component that performs the infringing method. DRTR processes roughly 4% of WebPulse’s total web requests, so Finjan established a royalty base by multiplying the 75 million worldwide WebPulse users by 4%. Although DRTR also performs the non-infringing functions described above, Finjan did not perform any further apportionment on the royalty base.

Finjan argues that apportionment to DRTR is adequate because DRTR is the “smallest, identifiable technical component” tied to the footprint of the invention. This argument, which draws from this court’s precedent regarding apportionment to the “smallest salable patent-practicing unit” of an infringing product, does not help Finjan. The smallest salable unit principle directs that “in any case involving multicomponent products, patentees may not calculate damages based on sales of the entire product, as opposed to the smallest salable patent-practicing unit, without showing that the demand for the entire product is attributable to the patented feature.” The entire market value rule is not at issue in this case, however, and the fact that Finjan has established a royalty base based on the “smallest, identifiable technical component” does not insulate them from the essential requirement that the ultimate reasonable royalty award must be based on the incremental value that the patented invention adds to the end product. As the Circuit noted in its 2014 VirnetX decision, if the smallest salable unit—or smallest identifiable technical component—contains non-infringing features, additional apportionment is required.

The panel further rules that substantial evidence does not support the jury’s verdict as to a reasonable royalty payment for infringement of the ’844 patent. Finjan simply multiplied the royalty base by an $8-per-user royalty rate. However, that $8-per-user rate was based on the testimony of Finjan’s Vice President of IP Licensing, who testified that this is what Finjan would have asked for at the time, since that is the royalty rate it recovered in another case.

The panel notes that Finjan failed to adequately tie the facts of that other case to this case. Finjan contended that the other case also was in the computer security field but the panel rules that that surface similarity is far too general to be the basis for a reasonable royalty calculation. In any case, just because $8 might have been a starting point in licensing negotiations says little about what the parties would have agreed to in a hypothetical arm’s length negotiation at the time.

The panel expresses its reluctance to reverse the denial of JMOL since this could result in a situation in which Finjan receives no compensation for Blue Coat’s infringement of the ’844 patent. The district court must award damages in an amount no less than a reasonable royalty when infringement is found, unless the patent holder has waived the right to damages based on alternate theories. Therefore, the panel remands the case to the district court to determine whether Finjan has waived the right to establish reasonable royalty damages under a new theory and whether to order a new trial on damages.

Read the full opinion

Advanced Video Technologies LLC v. HTC Corporation, Fed. Cir. Case 2016-2309-11 (January 11, 2018)

A majority of a split panel affirms the dismissal of a patent infringement action based upon lack of standing because a co-owner’s interest in the patent had not been transferred to plaintiff Advanced Video.

The ’788 patent names three co-inventors who at the time in question were employed with Infochips Systems Inc. Two of the inventors assigned their interests to Advanced Video but the third inventor, Ms. Hsiun, did not. Advanced Video maintains that it acquired Hsiun’s interest through a series of transfers beginning with a transfer to Infochips.

The assignment at issue was the first, to Infochips. At the time of her employment, Hsiun signed an Employment Agreement that recited that she “will hold in trust for the sole right and benefit of the Company, and will assign to the Company … any and all inventions … I may solely or jointly conceive … during the period of time I am in the employ of the Company.” A quitclaim provision of the Employment Agreement further states: “I hereby waive and quitclaim to the Company any and all claims … which I now or may hereafter have infringement [sic] of any patents … resulting from any such application assigned hereunder to the Company.”  

Reviewing the case for clear error, the majority agrees with the district court that the “will be assigned” language did not effect an assignment but was merely a promise to assign. As far as the trust is concerned, the majority also agrees that even if Hsiun’s interests in the invention were immediately placed in trust, it does not follow that those interests were automatically, or ever, actually transferred out of trust in favor of Infochips. Absent a transfer, Hsiun would continue to hold the invention rights as a trustee. As to the quitclaim assignment, the majority agrees with the district court that since no patent rights were ever assigned, the quitclaim provision did not effect an assignment.

In a concurring opinion, Judge O’Malley says she feels bound by precedent but disagrees with the precedent holding that a non-consenting co-owner can never be involuntarily joined in an infringement action pursuant to Rule 19 of the Federal Rules. In her dissent, Judge Newman argues that, by her Employment Agreement, Hsiun’s invention was the property of her employer; she was not the owner, and she could not acquire ownership simply by refusing to sign a separate “assignment” document.

Read the full opinion

Exmark Mfg. Co. Inc. v. Briggs & Stratton Power Products Group, LLC, Fed. Cir. Case 2016-2197 (January 12, 2018)

Exmark filed suit against Briggs, alleging infringement of its patent directed to a lawn mower having improved flow control baffles. The district court entered summary judgment that claim 1 was not invalid because the claim survived multiple reexaminations involving the same prior art. The Circuit reverses that determination, ruling that denial of a summary judgment of no invalidity cannot be based solely on the fact that the claims survived multiple reexaminations. Holding otherwise would improperly give complete deference and preclusive effect to the PTO’s patentability determination, foreclosing challenges to patent validity in district court based on the same prior art.

The Circuit affirms the district court’s denial of summary judgment of indefiniteness as to whether a baffle portion is straight enough or long enough to be “elongated and substantially straight” for purposes of determining infringement. The Circuit notes that the claim language and specification provide reasonable certainty as to the meaning of the phrase.

The Circuit holds that the district court abused its discretion in denying a new trial on damages because Exmark’s damages expert failed to provide an adequate explanation as to how she arrived at a 5% royalty rate for the patented feature relative to other conventional features of the accused products. After a discussion of each of the Georgia-Pacific factors, Exmark’s expert concluded, with little explanation, that Exmark and Briggs would have agreed to a 5% reasonable royalty rate on the sales of the accused lawn mowers as the value for the improved baffle. Nowhere in her report did she tie the relevant Georgia-Pacific factors to the 5% royalty rate or explain how she calculated a 5% royalty rate. To be admissible, expert testimony opining on a reasonable royalty must sufficiently tie the expert testimony on damages to the facts of the case. If the patentee fails to tie the theory to the facts of the case, the testimony must be excluded.

The panel finds that the court abused its discretion in excluding evidence of conventional modes of mowing to rebut Exmark’s argument that the claimed mower was a big advancement over the prior art. Specifically, the panel holds that the district court abused its discretion by holding that prior art is relevant to damages only to the extent that the prior art was commercialized.

The jury found that Briggs willfully infringed, awarding over $24 million in compensatory damages, which the district court doubled as enhanced damages for Briggs’ willful infringement. The panel determines that the district court abused its discretion by excluding from the willfulness trial evidence relating to patent validity because the district court determined that Briggs’ invalidity defenses were “objectively unreasonable.” According to the panel, the court’s evidentiary ruling does not comport with the 2016 Halo decision mandating that willfulness is to be determined by the jury regardless of whether Briggs’ defenses were objectively reasonable. The district court must reconsider its decision to exclude evidence of the prior art during the jury trial on willfulness to determine whether Briggs had developed any views about the prior art at the time of accused infringement or whether the evidence only relates to Briggs’ litigation-inspired defenses.

Read the full opinion

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