Konig v. Google – The Circuit affirms, due to the statute of limitations, the grant of a JMOL throwing out a breach of contract jury verdict obtained by Google based upon a former employee’s failure to assign patents clearly required to be assigned under an employment contract. This breach of contract claim was asserted in defense of a patent infringement claim brought by Konig’s company. The case turned on whether SRI, Google’s predecessor in interest, should have known, within the three year statutory period, that the inventions had not been properly assigned. The Circuit affirms the district court’s finding that a series of red flags should have alerted SRI to the fact that Konig was developing ideas conceived while employed at SRI. Despite losing on the breach of contract claim, Google prevails as to patent infringement because the patents had been found invalid in inter parties reexamination, so Konig’s cross appeal on claim construction was asking for an advisory opinion, which the Circuit refuses to provide even though the claim construction might hurt Konig’s assertion of related patents in future litigation.

JVC – JVC sued Nero for contributory and induced infringement of JVC patents based on Nero’s sale of software to end users of DVD and Blu-ray discs, that allegedly directly infringe the JVC patents. Neither the district court nor the Circuit panel accepts JVC’s theory of infringement because JVC had licensed these patents through DVD and Blu-ray licensing pools which were directed toward these standards. In arguing that the products in question necessarily fell within the standards, JVC also argued that they necessarily fell within the licensing pools. The district court’s alternative holding that patent exhaustion applies is vacated by the Circuit due to the inadequacy of the record as to whether the products whose sale is suggested as supporting patent exhaustion actually originated from or through the patentee.

ABT – The Circuit reverses denial of a motion for JMOL regarding obviousness, determining that under KSR, the invention would have been obvious. The case is unusual since it is a reversal of a jury verdict of nonobviousness, but here there were no real issues of fact relating to obviousness. According to the panel, the prior art taught the claimed invention and there was adequate teaching that one would have thought to make the combination. Even though the jury found that the objective indicia supported nonobviousness, the panel determined as a matter of law that there was no showing of a nexus between the indicia and the claimed invention.

Hyatt v. Lee – The Circuit affirms dismissalfor lack of subject matter jurisdiction of a suit Gilbert Hyatt brought against the PTO. The case was filed in response to the PTO’s requirement that portions of Hyatt’s hundreds of long-pending patent applications should be published. While the opinion is designated as precedential, because the case appears to have no applicability beyond Mr. Hyatt, it has not been summarized below.

Personalized User Model, LLP; Yochai Konig v. Google Inc., Fed. Cir. Case 2014-1841, 2015-1022
(August 18, 2015)

Konig was employed by SRI from April 1996 to August 1999. At the beginning of his employment, Konig signed an Employment Agreement, requiring him to disclose and assign any invention, including software, conceived or made by him during his employment.

In May 1999, while still employed by SRI, Konig started generating documents marked confidential, relating to a personalized information services idea. Konig then formed a company named Utopy, and Konig left SRI two weeks later, on August 5, 1999. Meanwhile, Konig filed a provisional patent application on December 28, 1999, and on June 20, 2000, filed a nonprovisional application, which issued as the ‘040 patent, listing Utopy as the assignee. Utopy then assigned the ‘040 patent to PUM. Konig filed another patent application in 2008, naming PUM as the assignee, and that application issued as the ‘276 patent.

In July 2009, PUM sued Google in the District of Delaware, asserting infringement of the ‘040 and ‘276 patents. During discovery, PUM produced documents proving that the conception date for the invention claimed in the asserted patents was in July 1999, while Konig was still at SRI. Google subsequently contacted SRI and acquired “any rights” that SRI had in the asserted patents, and brought a counterclaim for breach of contract in February 2011. PUM and Konig responded that the counterclaim was time-barred as filed more than three years after the claim first accrued. Before trial, the court construed several claim terms in the ‘040 and ‘276 patents, including the term “document.”

The district court then presided over a jury trial in which the jury found that Google did not infringe the ‘040 and ‘276 patents and that all asserted claims were invalid. The jury found that the three-year statute of limitations for Google’s breach of contract claim was tolled, and that Konig breached the employment contract.

After the court entered judgment on the verdict, PUM and Konig moved for JMOL on the breach of contract counterclaim. The court held that no reasonable juror could have found that the injury, the basis for the counterclaim, was “inherently unknowable” and that SRI was not on inquiry notice. The court also noted that there was no evidence that SRI exercised any diligence, finding that, had SRI undertaken any reasonable investigation, it would have discovered that the invention was conceived during Konig’s employment at SRI. The court concluded that no reasonable juror could find that SRI was “blamelessly ignorant.”

The court also rejected Google’s argument that § 8117 allows “an action that had no connection to Delaware to be brought, as long as no more than three years have passed since the time that the defendant . . . became subject to service of process.” The court therefore granted JMOL in favor of PUM and Konig on the breach of contract counterclaim due to the statute of limitations having run.

I. Discovery Rule Tolling

If the limitations period was not tolled, then Google’s suit is time-barred. The “time of discovery rule” in Delaware provides that the statute of limitations period is tolled while “the injury is inherently unknowable” and “the claimant is blamelessly ignorant of the wrongful act and the injury complained of.” Even viewing the record in the light most favorable to Google and drawing all reasonable inferences in its favor, we agree with the court that Google did not provide legally sufficient evidence for the jury to find that the injury was inherently unknowable or that SRI was blamelessly ignorant, and therefore could not invoke the discovery rule to toll the limitations period.

First, Google failed to prove that the injury was inherently unknowable. SRI knew that Konig was leaving to immediately work at a start-up technology company. Considering the competitiveness of companies and institutes in the technical world and, as Google has argued, that the technology was related to Konig’s work at SRI, his departure and new venture could well have been a “red flag” that should have generated an inquiry whether Konig had conceived an invention during his employment with SRI that he might intend to develop and commercialize with his new company.

More importantly, Google failed to show that SRI was blamelessly ignorant of Konig’s alleged breach of contract. Despite the opportunities for SRI to have inquired about Konig’s departure and his new venture—the obvious one being an exit interview, at which an inquiry might have been made regarding whether Konig had made any inventions at SRI that had not been reported to SRI—the record is critically deficient on the minimum quantum of evidence necessary to show that SRI did anything to protect its interests. Even if a reasonable investigation might not have given SRI definitive proof of a breach of contract, we agree with the district court that such actions could have uncovered clues as to a potential claim. We therefore agree with the district court that there is insufficient evidence in the record to support findings that any breach was inherently unknowable and that SRI was blamelessly ignorant.

II. Statutory Tolling

We next address the district court’s holding that the Delaware tolling statute also did not toll the statute of limitations period. Section 8117 of Title 10 of the Delaware Code, titled “Defendant’s absence from State,” reads as follows:

If at the time when a cause of action accrues against any person, such person is out of the State, the action may be commenced, within the time limited therefor in this chapter, after such person comes into the State in such manner that by reasonable diligence, such person may be served with process.

The Delaware Supreme Court has stated that “the purpose and effect of Section 8117 is to toll the statute of limitations as to defendants who, at the time the cause of action accrues, are outside the state and are not otherwise subject to service of process in the state.” The district court rejected Google’s proffered interpretation of § 8117, stating that it did not understand the statute to mean that any party sued in Delaware could assert stale counterclaims with no connection to Delaware.

We agree with the district court that § 8117 should not apply to toll the statute of limitations period in this case. Although the statute on its face does not require any connection to Delaware, we agree with the district court’s disinclination to interpret the statute so broadly as to apply to any claim, claimant, or defendant. The Delaware Supreme Court has held that the tolling statute does not necessarily apply “in any action in which the defendant is a non-resident;” such an application “would result in the abolition of the defense of statutes of limitation in actions involving non-residents.” Unlike the case law in which § 8117 is applied or otherwise discussed, here there was no tie to Delaware at the time the cause of action accrued. We thus find that Google failed to prove that § 8117 should apply to its counterclaim.

III. Cross-Appeal

Finally, we address PUM’s cross-appeal regarding the district court’s construction of the claim term “document.” Google argues that there is no longer a live infringement controversy between the parties because the district court found the claims not infringed, PUM did not seek any further district court proceedings on infringement, and the USPTO cancelled all asserted claims in inter partes reexamination.

We agree with Google that we lack jurisdiction over PUM’s cross-appeal. Article III of the U.S. Constitution limits the jurisdiction of federal courts to “cases” and “controversies,” neither of which is presented by PUM’s cross-appeal relating to the district court’s alleged error in claim construction. Despite PUM’s concerns that the construction might be given preclusive effect in future litigation involving its related patents, we may not provide an advisory opinion on the meaning of a claim term that does not affect the merits of this appeal and thus is not properly before us.

JVC Kenwood Corporation v. Nero, Inc., Fed. Cir. Case 2014-1011 (August 17, 2015)

The district court held, on summary judgment, that JVC’s claims were barred by JVC’s participation in patent pools: JVC is “barred from asserting claims of direct infringement against end users for use of Nero software with DVD and Blu-ray optical discs made or sold by a party whose products have been expressly released from claims of infringement by JVC with regard to the Patents.” The court held that, absent direct infringement, Nero cannot be liable for indirect infringement. The court alternatively held that: “End users’ use of Nero software with DVD and Blu-ray optical discs licensed under the Patents is subject to the affirmative defense of patent exhaustion with regard to infringement of the Patents.” The Circuit agrees as to the primary holding, but concludes that facts material to the issue of patent exhaustion were insufficiently developed to warrant summary judgment on that alternative ground.

The six JVC patents at issue are directed to optical discs and specific structures, methods, or systems used with optical discs: JVC states that users of Nero’s software-implemented systems and methods, in conjunction with DVD and Blu-ray optical discs, directly infringe relevant patents. Thus JVC argues that Nero, as provider of the software, is liable for contributory or induced infringement. JVC did not provide or proffer evidence of specific direct infringement by any end user, but instead advanced a standards-compliance theory of infringement.

The Patents Were “Standards Essential” So Were Licensed Under the Patent Licensing Pool

JVC stresses that its theory of infringement is that end users of Nero’s software, when used with DVD and Blu-ray discs, comply with the DVD and Blu-ray standards to which the JVC Patents are essential, whereby the end users “must necessarily” infringe the patents. JVC’s claim charts consistently reference that Nero’s software complies with relevant DVD or Blue-ray specifications, and that the patents are included in the licensing pools for DVD and Blu-ray disc products.

The record describes two licensing pools for optical disc technology, viz., the DVD Patent Licensing Group (also called DVD6C), and One Blue LLC for Blu-ray technology. The patents in suit were included in both pools. Both pools grant nonexclusive licenses for products used to practice the applicable standard specifications.

On these premises, the district court held that direct infringement is negated by the “extensive licensing program, both as part of the DVD6C and One Blue patent pools as well as through JVC’s individual licensing program.” If a product complies with the standards, it falls within the scope of the licensing pools. The court observed that consumers using licensed products were licensees and cannot be infringers. By relying on the standards to establish infringement, JVC also established Nero’s license defense.

JVC then argued that licensees to the DVD6C pool only receive a license to those patents related to particular products, selected by the licensee, which “practice the DVD Standard Specifications” applicable to the licensee’s products. JVC asserted that Nero customers use Nero software with unlicensed disks.

The Circuit affirms the district court’s rejection of that theory, observing that JVC cited no “specific allegations and evidence” of unlicensed discs, and the district court correctly rejected JVC’s argument that it was not its burden to make such a showing:

JVC cannot have it both ways—either the patent is essential and licensed or JVC cannot rely on the standards to show infringement as it has chosen to do.

The Holding as to Patent Exhaustion is Vacated Due to Inadequate Proof that the Products Originated from JVC

The district court alternatively relied on patent exhaustion, holding that the conditions for exhaustion, as set forth by the Supreme Court in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), were met on JVC’s theory of infringement. The Circuit disagrees because the record is silent as to some essential aspects of patent exhaustion. As the panel explains: “Exhaustion is triggered only by a sale authorized by the patent holder,” 553 U.S. at 636, whereby if the thing that is sold “substantially embodies” patented subject matter owned by the entity that authorized the sale, then the patent is exhausted as to the thing sold. “Substantial embodiment” is established if (1) the only reasonable and intended use of the article is to practice the allegedly exhausted patent; and (2) the article embodies the essential or inventive features of the allegedly exhausted patent. The Court in Quanta explained that, to determine whether the article sold has a reasonable and intended use that does not practice the patent, “the features partially practicing the patent are what must have an alternative use.”

JVC argues that it was not established that the discs sold to Nero’s customers were licensed, and that it was not established that the licensed aspects of the patents are essential to all uses of the DVD6C or One Blue discs. JVC states that users of the Nero software could have been using unlicensed discs, and that the sale of unlicensed discs would not trigger exhaustion of even “standards essential” patents.

The panel notes that JVC did not resolve the contradiction on which the district court focused, that if the patents represent a “substantial embodiment” of the optical discs as sold—as JVC argued in support of infringement—then the patents are exhausted on sale of the discs. In arguing that the district court improperly applied the criteria of patent exhaustion, JVC also negated its own theory of infringement—as the district court recognized.

However, on the sketchy record, contradictory arguments, and undeveloped facts before the Circuit, it declined to expand the theory of patent exhaustion to reach this case. “Patent exhaustion is a judicially fashioned doctrine without a specific source in congressionally enacted text stating the terms of this limitation on patent rights.” Helferich Patent Licensing, LLC v. New York Times Co., 778 F.3d 1293 (Fed. Cir. 2015).

On application of the principle of exhaustion as set forth in Quanta, the threshold criterion is that the product whose sale is suggested to exhaust the patent must have originated from or through the patentee; the record of this case does not so establish. Here, where the district court clearly determined that infringement had not been shown on JVC’s theory and argument of the case, the Circuit affirms on that ground. Thus it vacates the district court’s ruling with respect to patent exhaustion.

ABT Systems, LLC v. Emerson Electric Co., Fed. Cir. Case 2014-1618, 2014-1700
(August 19, 2015)

ABT sued Emerson for infringement, and the jury determined that the asserted claims were not invalid and were infringed Emerson’s “Big Blue” thermostats. Based on a royalty rate of $2.25 per unit, the jury awarded damages in the amount of $311,379 on sales of 138,891 thermostats. ABT appeals three rulings relating to damages, and Emerson cross-appeals the denial of its motion for JMOL that the asserted claims were obvious. Because the panel reverses the judgment of non-invalidity, it was not necessary to address ABT’s appeal.

The ‘017 patent claims an apparatus for running an HVAC system fan intermittently during periods when there is no call for heating or cooling. In particular, the ‘017 patent claims a forced central air system with a “recycle control” for periodic fan operation when the system is not heating or cooling. The periodic fan operation begins “a preselected time period” after the fan stops at the end of a heating or cooling cycle, or after the termination of “constant fan mode” operation.

At trial Emerson relied on four prior art references: Cornelius, Vogelzang, Petrone, and/or Nakatsuno. The district court denied Emerson’s motion for JMOL reasoning that “the jury could have reasonably found, based upon the evidence, that the prior art did not disclose ‘periodic’ fan operation that was dependent upon the deactivation of the heating or cooling function of the system, and further that was adaptable to modern air conditioning systems.” The court stated: “The jury could have also found from the evidence that there was a long-felt need for a periodic fan recycle control as disclosed in the Rudd Patent.” The court continued that it could not “say as a matter of law that the claimed invention is not more than the predictable use of prior art elements according to their established functions.”

Even Though Deference Must Be Accorded the Verdict, KSR Requires Reversal

On appeal from a jury verdict on the issue of obviousness, “we review all of the jury’s explicit and implicit factual findings for substantial evidence. We then examine the legal conclusion on the issue de novo to determine whether it is correct in light of the factual findings that we find adequately supported.” Kinetic Concepts, Inc. v. Smith & Nephew, Inc., 688 F.3d 1342 (Fed. Cir. 2012).

Cornelius and Vogelzang both disclose periodic fan operation when there is no call for heating or cooling. Neither explicitly teaches running the fan periodically as a direct function of when the heating or cooling elements are deactivated. Petrone and Nakatsuno disclose systems wherein the system fan may be operated for a predetermined length of time after the compressor stops. Unlike Petrone, however, Nakatsuno suggests that the fan may also be intermittently driven to improve comfortableness and also to minimize energy consumption during periods when there is no call for heating or cooling from the system.

In analyzing the jury’s decision, we first presume that the jury resolved the underlying factual disputes in favor of the verdict and leave those presumed findings undisturbed if they are supported by substantial evidence. Next, we examine the ultimate legal conclusion of nonobviousness de novo to see whether it is correct in light of the presumed jury fact findings. In recreating the facts as they may have been found by the jury, and in applying the Graham factors, we assess the record evidence in the light most favorable to the verdict winner. In this case, there are few, if any, relevant differences between the parties’ understanding of the scope and content of the prior art, the differences between the prior art and the claims, and the level of ordinary skill in the art.

In view of the undisputed facts, as well as those that are presumed to have been resolved by the jury in ABT’s favor, the issue of obviousness thus turns on whether, at the time of the invention, a person of ordinary skill would have combined elements from the several prior art references. Specifically, the question is whether a person of skill would have combined references that disclose “single-shot” fan operation as a function of the time when heating or cooling cycles end with references that teach periodic fan cycles during periods of time when there is no call for heating or cooling.

In KSR, the Supreme Court instructed that “when a patent claims a structure already known in the prior art that is altered by the mere substitution of one element for another known in the field, the combination must do more than yield a predictable result.” The Court stated that “if a person of ordinary skill can implement a predictable variation [of a prior art reference with other prior art components], § 103 likely bars its patentability.” Here, the timer of Vogelzang or Cornelius, modified by the predetermined and compressor-dependent interval of Nakatsuno or Petrone, would have yielded a predictable result: the system fan would activate periodically following the end of a heating or cooling cycle—the invention claimed in the ‘017 patent.

It is well settled that, even where references do not explicitly convey a motivation to combine, “any need or problem known in the field of endeavor at the time of invention and addressed by the patent can provide a reason for combining the elements in the manner claimed.” KSR. We have made clear that “a court may find a motivation to combine prior art references in the nature of the problem to be solved.” Ruiz v. A.B. Chance Co., 357 F.3d 1270 (Fed. Cir. 2004). As pertinent here, “this form of motivation to combine evidence is particularly relevant with simpler mechanical technologies.”

In our view, if, at the time of the invention, a person of ordinary skill had looked at Vogelzang, he or she would have found it nearly obvious from that disclosure itself to set the periodic fan to run as a function of when the heating or cooling cycle ended. That is because the nature of the problem to be solved in both the ‘017 patent and Vogelzang (as well as Cornelius and Nakatsuno) is to alleviate air stagnation during periods of no heating or cooling. Thus, setting a delay timer or control based on the end of the heating or cooling cycle, similar to the concept in Nakatsuno or Petrone, would have been naturally implemented by a person skilled in the art. In other words, it would have been obvious to set the timer of Vogelzang or Cornelius based on the end of a heating or cooling cycle, as disclosed in Nakatsuno (or Petrone), regardless of for how long the time interval was to be set.

There is No Showing of a Nexus Between the Claimed Invention and the Objective Indicia

The fourth Graham factor, objective evidence of nonobviousness, includes factors such as “commercial success, long-felt but unresolved need, failure of others, copying, and unexpected results.” ABT’s reliance on commercial success is undermined as a matter of law by ABT’s failure to introduce evidence related to the nexus between periodic fan operation and the commercial success of products embodying the invention claimed in the ‘017 patent. The items that ABT presented as evidence in support of its commercial success argument were, in large part, advertisements and press releases for Mr. Rudd’s products, not market share information or industry praise or recognition for the novelty of the fan recycler feature claimed in the ‘017 patent. We are also not persuaded by ABT’s argument that commercial success is demonstrated by the number of licenses taken under the ‘017 patent. While licenses can sometimes tilt in favor of validity in close cases, they cannot by themselves overcome a convincing case of invalidity without showing a clear nexus to the claimed invention. Here, ABT points to no evidence that the licenses it cites were taken based on the merits of the invention claimed in the ‘017 patent.

ABT’s argument that there was a long-felt need for the invention embodied in the claims of the ‘017 patent likewise does not lead us to a different result. The disclosures of the prior art references—and especially Vogelzang’s “cycle position” option for running a system fan “during periods when there is no operation of the heating apparatus or cooling apparatus” to help mix air—eliminate any serious contention that there was a long felt need for the invention claimed in the ‘017 patent. ABT’s argument of a long-felt need ignores the scope of claim 1, which does not set forth limits on how long or how often periodic fan operation is to be performed.

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