Kenneth R Adamo at Kirkland & Ellis LLP offers his highly sought-after expertise on current developments that look set to alter the course of patent enforcement in the United States.
Enforcement of patent rights in the US through litigation tends to follow a fluid, changing path, driven by the constant generation of precedent by the United States Supreme Court (the Court) and the United States Court of Appeals for the Federal Circuit (the Federal Circuit). Beginning in late 2010, continuing into 2011, four cases – two before the Federal Circuit, two before the Court – are now being adjudicated, the decisions taken might radically alter patent enforcement in the United States for the foreseeable future.
The Federal Circuit Cases
In Therasense, Inc v Becton, Dickinson and Co, 593 F.3d 1289 (Fed. Cir. 2010), reh en banc granted, Nos. 2008-1511, to 1514, - 1595, the Federal Circuit is reviewing en banc, for the first time in about 25 years, the inequitable conduct defence to patent enforceability. As Chief Judge Rader has put it, the Federal Circuit in Therasense “has been asked to address the transformation of inequitable conduct from the rare exceptional case of egregious fraud that results in the grant of a patent that would not otherwise issue to a rather automatic assertion in every infringement case. The exception has become the rule.” Advanced Magnetic Closures, Inc v Rome Fastener Corp, 607 F.3d, 817, 835 (Fed. Cir. 2010) (Rader, C.J., concurring).
Specifically, the court has focused on six questions:
• Should the materiality-intent-balancing framework for inequitable conduct be modified or replaced?
• If so, how? In particular, should the standard be tied directly to fraud or unclean hands? See Precision Instrument Mfg. Co v Auto. Maint. Mach. Co, 324 US 806 (1945); Hazel-Atlas Glass Co v Hartford-Empire Co, 322 US 238 (1944), overruled on other grounds by Standard Oil Co v United States, 429 US 17 (1976); Keystone Driller Co v Gen. Excavator Co, 290 US 240 (1933). If so, what is the appropriate standard for fraud or unclean hands?
• What is the proper standard for materiality? What role should the United States Patent and Trademark Office’s rules play in defining materiality? Should a finding of materiality require that but for the alleged misconduct, one or more claims would not have issued?
• Under what circumstances is it proper to infer intent from materiality? See Kingsdown Med. Consultants, Ltd v Hollister, Inc, 836 F.2d 867 (Fed. Cir. 1988) (en banc).
• Should the balancing inquiry (balancing materiality and intent) be abandoned?
• Whether the standards for materiality and intent in other federal agency contexts or at common law shed light on the appropriate standards to be applied in the patent context.
The case was argued in November 2010.
It appears unlikely that the court will tighten the required materiality and intent showing to the point where inequitable conduct is vitiated, but expectations are of a heightened materiality requirement and a clearer explanation but stricter application of the materiality or inference of intent interface, all of which favour patent owners in their attempts to enforce US patents.
In TiVo, Inc v EchoStar Corp., 2010 WL 724807 (Fed. Cir. 2010), reh en banc granted, No. 2009 - 1374, the Federal Circuit, again sitting en banc, is reviewing the standards for the use of contempt proceedings, rather than a new infringement trial, where an adjudged infringer produces a new product, different from that found to have infringed, an alleged ‘design-around’ of the US patent. The court, as in Therasense, is considering the issue in the context of a set of questions presented:
• Following a finding of infringement by an accused device at trial, under what circumstances is it proper for a district court to determine infringement by a newly accused device through contempt proceedings rather than through new infringement proceedings? What burden of proof is required to establish that a contempt proceeding is proper?
• How does “fair ground of doubt as to the wrongfulness of the defendant’s conduct” compare with the “more than colourable differences” or “substantial open issues of infringement” tests in evaluating the newly accused device against the adjudged infringing device? See Cal. Artificial Stone Paving Co v Molitor, 113 US 609, 618 (1885); KSM Fastening Sys., Inc, v H.A. Jones Co., 776 F.2d 1522, 1532 (Fed. Cir. 1985).
• Where a contempt proceeding is proper
(1) what burden of proof is on the patentee to show that the newly accused device infringes (see KSM, 776 F.2d at 1524) and
(2) what weight should be given to the infringer’s efforts to design around the patent and its reasonable and good faith belief of noninfringement by the new device, for a finding of contempt?
• Is it proper for a district court to hold an enjoined party in contempt where there is a substantial question as to whether the injunction is ambiguous in scope?
And, the court, again, is going back about 25 years to readdress this issue. See KSM Fastening Sys., Inc. The case was argued in November 2010, on the same day as Therasense.
The KSM test denies contempt proceedings against a design around which is more than a mere ‘colourable variation’ of what had been already judged to be an infringement. The TiVo panel dissent contended that: “[a] full examination of the disputed claim shows little similarity between the former infringement proceedings and the issues now before this court. The accused structures are different. The theories of infringement are different. The pertinent claim constructions apply in ways that are different. The parties’ positions have flip-flopped. The modified method operates in a significantly different way from the old. Indeed, the only thing that is not different is the identity of the parties themselves. These differences deserve a trial, not a summary contempt proceeding.”
When the dust settles, good faith in a design-around effort, leading to more than a ‘colourable difference’ between the redesigned, (substantially) altered product over that earlier found to infringe, may well not be amenable to challenge and review through anything less than a second full patent infringement trial, possibly even a full second lawsuit, including further discovery, new expert reports, etc., a result favouring the previously-found infringer in getting out from under the effects of such a judgment.
The Court Cases
SEB S.A. v Montgomery Ward & Co, Inc, 594 F.3d 1360 (Fed Cir. 2010), cert. granted sub nom, Global Tech Appliances Inc v SEB S.A., No. 10-6 (2 October 2010), involved what is referred to in US patent law as indirect infringement, specifically inducement of infringement under 35 U.S.C.§ 271(b). Inducement requires two basic showings to establish liability: that a third party has directly infringed the patent in suit (in the sense of 35 U.S.C. § 271 (a)), and that the defendant’s actions induced the infringing acts. Indirect infringement is often relied upon to establish liability for infringement of method of use claims and systems claims, often in communications, software, and similar technology areas.
The question that the Court will decide is: whether the legal standard for the state of mind element of a claim for actively inducing infringement under 35 U.S.C. §271(b) is “deliberate indifference” to a known risk that an infringement may occur, as the [. . .] Federal Circuit held, or “purposeful, culpable expression and conduct” to encourage an infringement, as this Court taught in MGM Studios Inc v Grokster, Ltd, 545 US 913, 937 (2005).
Also seemingly at issue is whether the Court will require that the inducer has actual knowledge of the patent, rather than accepting as sufficient constructive knowledge, deliberate indifference, or some other equivalent of ‘lesser-than-actual’ knowledge. See DSU Medical Corp v JMS Co, 471 F.3d 1273 (Fed Cir. 2006) (en banc). The case was argued in February 2011.
If the Court follows the Federal Circuit’s ‘deliberate indifference’ standard, potential liability for inducement will remain broad; if purposeful, culpable expression and conduct to encourage the direct infringement is required, potential inducement liability will narrow. Speculation is that the Court will reaffirm DSU, and give a clear indication that liability for inducement requires actual knowledge of a patent and deliberate conduct in light of that knowledge to cause the direct infringement, a pro-accused infringer holding. See Carr, “Does Inducement of Patent Infringement Require Actual Knowledge of a Patent? - The Supreme Court’s Review of Global Tech Appliances, Inc v SEB S.A.,” 81 PTCJ 320 (12 January 2011)
In Microsoft Corp v i4i LP, 598 F.3d 831 (Fed. Cir. 2010), cert granted, No. 10 - 290 (29 November 2010), the issue is the level of evidentiary deference that a trial court must charge a jury to apply (or apply itself in a bench trial), when determining whether a US patent is valid, when invalidity is raised as a defence to a charge of patent infringement. The case will be argued in April 2011.
Microsoft is trying to reverse a US$290 million damages judgment by persuading the Court to hold that an accused infringer need only prove invalidity by a ‘preponderance of the evidence’ – not by ‘clear and convincing evidence’, as the Federal Circuit has held for over 25 years is the evidentiary burden based upon the statutory presumption of validity (35 U.S.C. § 282) – at least where the USPTO has not considered the prior art relied upon as the basis of arguing invalidity:
The Patent Act provides that ‘[a] patent shall be presumed valid’ and that ‘[t]he burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity.’ (35 U.S.C. § 282). The Federal Circuit held below that Microsoft was required to prove its defence of invalidity under 35 U.S.C. § 102(b) by ‘clear and convincing evidence,’ even though the prior art on which the invalidity defence rests was not considered by the Patent and Trademark Office prior to the issuance of the asserted patent. The question presented is: whether the Court of Appeals erred in holding that Microsoft’s invalidity defence must be proved by clear and convincing evidence.
A holding by the Court that satisfying a ‘preponderance of the evidence’ burden would suffice to invalidate an issued patent, would, arguably, diminish the perceived strength of US patents, at least those where truly more pertinent or relevant prior art was discovered during the litigation process, which an accused infringer would contend the USPTO examiner had not considered in allowing the patent to issue. Any result different than affirming the across-the-board application of the clear and convincing evidence burden will be defined to be a sea-change in US patent enforcement, whose ramifications will play out perhaps both in current and (certainly) future cases.
These four cases, all of which should be decided by the close of the Court’s term in June 2011, certainly present the potential of greater risk and change than has been seen in US patent enforcement for the last quarter of a century, challenging all involved in the enforcement of US patent rights.