RL-fa17-PatentTrolls-AmnBarAssnPaper-9-19-2018

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https://www.americanbar.org/groups/busi ... /05_jones/

American Bar Association – Business Law Section – September 19, 2018

The Five Most Publicized Patent Issues Today

By Neil C. Jones, Esq. -- a senior member of the intellectual property law and litigation group of Nelson Mullins, a national law firm with offices in 25 American cities.

Not since the Court of Appeals for the Federal Circuit was created almost 32 years ago has there been a greater focus on patent issues in the United States. When the Federal Circuit began business on October 1, 1982, the nation's patent laws were in a state of disarray, with the Eighth Circuit Court of Appeals not having upheld the validity or infringement of a patent for 25 years and with the Fifth Circuit being known for enforcing all patents that came before it. Seeing the issues that existed in the United States with respect to patent law uniformity and after being lobbied by big-name corporations, the Carter administration conceived and the Reagan administration gave birth to a federal appellate court to hear all patent appeals from district courts across the country, as well as appeals from the U.S. Patent Office's (USPTO) board of patent appeals.

The court immediately took charge of the nation's patent landscape and began upholding more patents than ever before, affirming damage awards, making it easier for patent owners to show willful infringement, and making it harder for accused infringers to invalidate patents. Chief

Judge Howard Markey, the court's first chief judge, and Judge Giles Rich, one of the co-authors of the 1952 patent act, took it upon themselves to harmonize patent law and set standards in order to rein in the vast differences that had existed among the regional circuits. Until recently, it was assumed in patent law circles that the Federal Circuit generally had the "final say" on the majority of patent law issues. But, fast forward some 30 years to today, and it appears now that the U.S. Supreme Court, Congress, and President Obama are the ones that want to have the "final say" on many patent issues, with the Federal Circuit taking the back seat.

Much of the movement stems from the implementation of the America Invents Act (AIA) in September 2011. The stated purpose of the AIA was to bring U.S. patent law in line with patent laws in the rest of the world. But, as will be explained later, the AIA has resulted in an attack on issued patents more than the Eighth Circuit ever did. The current Obama administration is also promoting a bill related to patent trolls with the intent to further curtail patent infringement suits. Congress appears to be close to adopting further limits on the enforcement of patent rights in the United States.

At the same time, the Supreme Court has been active in granting certiorari to patent cases. For several decades, the Supreme Court seldom addressed patent issues and allowed the Federal Circuit to develop its own patent law doctrines. But times have changed. In fact, in just the last four years, the Supreme Court has already taken more patent cases than in any decade since the 1960s. In the 1980s, the Supremes took 6 patent cases; in the 1990s, they took 8 cases; and in the 2000s, 9 patent cases. In the year of 2014 alone, however, the Supreme Court will hear at least 8 intellectual property cases, and 6 of those are patent cases. In fact, intellectual property cases will make up 11.4 percent of the 70 cases that the court will hear during its current October 2013–June 2014 term.

Some say that the reason that the Supreme Court is taking so many patent cases today is that, in recent years, different panels of the Federal Circuit have disagreed frequently on points of law. Unlike the early Markey/Rich court, where the Federal Circuit judges exhibited much more harmony regarding decisions, today's decisions show the variance in individual judges' beliefs regarding some of the most important patent law topics. And, when the Federal Circuit sits en banc to hear a case today, it very rarely speaks with a single voice; instead, a number of judges issue strongly-worded dissenting opinions.

Others, however, say that the recent rise of patent cases pending at the Supreme Court is linked to the uptick in new technologies, such as computer software and biotech. Whatever the cause, there is no doubt that the Supreme Court is not afraid to take cases away from the Federal Circuit in an attempt to dictate the parameters of today's patent laws.

With the renewed focus by Congress, the president, and the Supreme Court on patent law, this article looks at today's five most publicized patent issues. Among those issues are three Federal Circuit cases that will be, or that have been, argued at the Supreme Court in the spring of 2014, new legislation being considered by the Obama administration to curtail patent infringement litigation, and recent legislation that has created a clear mechanism for allowing issued patents to be attacked more frequently than ever before.

Patentability of Business Methods and Software – Alice Corp. v. CLS

The justices recently heard a case that many think may clarify the Supreme Court's explanation of what makes a computer-implemented invention patentable subject matter. When the appeal was heard by the Federal Circuit, it did little to clarify the issue. The district court had held that the method and computer-readable media claims were not patentable subject matter under 35 U.S.C. § 101. Sitting en banc with 10 of the 11 active judges participating, the Federal Circuit issued a two-sentence, per curiam affirmance as follows:

“Upon consideration en banc, a majority of the court affirms the district court's holding that the asserted method and computer-readable media claims are not directed to eligible subject matter under 35 U.S.C. § 101. An equally divided court affirms the district court's holding that the asserted system claims are not directed to eligible subject matter under that statute.”

What follows that relatively simple "opinion" is a tangled web of five separate opinions, as well as something entitled "Additional Reflections" that was written by Chief Judge Rader. Considering the morass of positions set forth in the Federal Circuit's writings, it was a foregone conclusion that the Supreme Court would grant certiorari. If there ever was a "divided" court on a patent law topic, it is this one. In fact, during oral argument at the Supreme Court, Justice Ginsburg noted that "[t]he Federal Circuit in this case split many ways."

The patent community has been waiting a long time for clear guidance as to what subject matter is patentable in the fields of computer-readable software, business methods, and biotech. While the Supreme Court has issued several decisions in the last few years finding certain subject matters unpatentable, (Association for Molecular Pathology v. Myriad Genetics, 133 S. Ct. 2107 (2013) (isolated DNA sequences); Mayo v. Prometheus, 132 S. Ct. 1289 (2012) (method of giving a drug to a patient and measuring metabolites of that drug); and Bilski v. Kappos, 130 S. Ct. 3218 (2010) (hedging program to minimize risk), it has failed to provide substantial guidance as to what is patentable subject matter.

Most attendees at the Alice oral argument said that the justices appeared inclined to invalidate the patents at issue (computerized trading platform), because the patents appeared to relate to an unpatentable abstract idea of reducing risk in financial trading using a computer. Justice Kennedy, for example, said that "f you describe [Alice's invention] to a second-year college class in engineering and said . . . here's my idea, now you go home and you program over this weekend, . . . my guess is that that would be fairly easy to program." "But . . . the innovative aspect is certainly not in the creation of the program to make that work. All you're talking about is – if I can use the word – an idea."

However, many of the questions and comments indicate that the Court may avoid answering the question of when software inventions are patent-eligible. For example, Justice Sotomayor asked: "Why do we need to . . . reach software patents at all in this case?" and "What's the necessity for us to announce a general rule with respect to software?" In fact, when Justice Sotomayor asked Solicitor General Verrilli "[d]o you think we have to reach the patentability of software to answer this case?," he replied "no, not necessarily."

Whether the Supreme Court will provide any meaningful guidance on the patentability of software and business methods in particular or on patent-eligible subject matter in general remains to be seen.

Joint Induced/Divided Infringement – Akamai v. Limelight

In Akamai Tech., Inc. v. Limelight Networks, Inc., 692 F.3d 1301 (Fed. Cir. 2012) (en banc), Akamai had sued Limelight for infringement of its patents relating to delivery of web content. However, Limelight did not perform all the steps in Akamai's patent. Instead, Limelight instructed its customers on the steps needed to modify web content themselves. In other words, third-party involvement was required in order to have all the steps of the Akamai patent completed.

Until the Federal Circuit's decision in Akamai, the law had been that "in order for a party to be liable for induced infringement, some other single entity must be liable for direct infringement" as held in BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007). Akamai had won a $40 million verdict, but Limelight prevailed in post-trial motions and the award was taken away. In another close en banc ruling, a 6–5 majority of the Federal Circuit specifically overruled BMC Resources and found that, although, "all the steps of a claimed method must be performed in order to find induced infringement, . . . it is not necessary to prove that all the steps were committed by a single entity."

The appeal to the Supreme Court is important because the issue of "joint infringement" often arises in high tech and Internet cases where a user or customer performs some of the steps of the patent but a software provider provides the means and instructions for the user or customer to carry out those steps. Obviously, most of the large software companies, such as Google, Oracle, Red Hat, SAP, and Cisco are disappointed with the Federal Circuit's decision, because if it stands, such companies stand to be held responsible for the actions of their customers. Most observers believe that the Supreme Court will overturn the Federal Circuit and reinstate the rule that a single entity must perform all the steps of a patent directly if someone is to be held liable for inducement of infringement.

Claim Construction – de novo Review or Deference - Teva Pharmaceuticals v. Sandoz

The Supreme court has granted certiorari in Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc., 727 F.3d 1363 (Fed. Cir. 2013). In Teva, the Supreme Court will apparently finally address an issue that has sharply divided the Federal Circuit for years – the amount of deference, if any, that is to be given to a district court's decision regarding the meaning of patent claims. Since the landmark Federal Circuit ruling in Markman v. Westview Instruments, Inc., 52 F.3d 967 (Fed. Cir. 1995), and its unanimous affirmance by the Supreme Court, 116 S. Ct. 1384 (1996), most courts have conducted hearings in the middle of a patent litigation to determine what disputed terms of a patent claim mean (some courts forego such hearings and instruct juries as to the meaning of patent claims after hearing the evidence presented at trial). These hearings, called "Markman hearings" or "claim construction interpretations," are the single most important event during the life of a patent infringement lawsuit before the verdict on infringement is returned.

A majority of the Federal Circuit has consistently ruled that the decisions of the district court judges as to claim construction are matters of law and that the Federal Circuit can review such decisions de novo. Most recently, on February 21, 2014, in a 6–4 en banc ruling in Lighting Ballast Control LLC. v. Philips Electronics N.A. Corp., Fed. Cir. No. 2012-1014 (Feb. 21, 2014), the Federal Circuit reaffirmed its longstanding rule that claim construction is a question of law and that the district court's claim interpretations should be continued to be reviewed de novo. Specifically, Judge Newman, the longest-serving member of the court, issued the opinion for the majority and said that "the court should retain plenary review of claim construction, thereby providing national uniformity, consistency, and finality to the meaning and scope of patent claims."

While often commenting on the process that a district court judge should follow when construing a patent, the majority has always said that the resulting interpretations are entitled to no deference on appeal. In other words, the Federal Circuit panel that hears a particular patent appeal can simply substitute its own judgment for that of the district court judge with respect to claim construction. That substitution occurs frequently on appeal, with district court interpretations being rejected or modified by the Federal Circuit in approximately half of the cases where that issue is considered.

Certain Federal Circuit judges over the years have said that a district court's claim construction should not be reviewed de novo, but instead should be given the same amount of deference as factual findings. These judges argue that district judges are best suited to construe patent claims and that the Federal Circuit should defer to the district courts.

Obviously, this issue has created great consternation for district court judges, whose decisions regarding claim construction (which often ultimately drive the outcome of both patent infringement and validity) can be undone if two out of the three Federal Circuit judges on the hearing panel simply disagree with the district court judge. In fact, Judge O'Malley, who had been a well-respected district court judge before becoming a Federal Circuit judge, authored the four-judge dissent in Lighting Ballast, arguing that the majority position "ignores both the realities of claim construction and Rule 52(a)’s demands. It is time we acknowledge the limitations of our appellate function and our obligation to comply with the Federal Rules of Civil Procedure, and give trial judges the deference their expertise and efforts deserve."

Most court observers believe that the Supreme Court will overturn the Federal Circuit and require claim construction to be reviewed either by the standard that is applied when reviewing factual findings or by a new standard that reflects some middle ground between review of legal findings and factual findings.

Proliferation of Patent Troll Legislation – Federal and State

In June 2013, President Obama announced what the White House called "major steps to improve incentives for future innovation in high tech patents" in an attempt to "build some additional consensus on smarter patent laws." The president believes that innovators face challenges from patent assertion entities (so called "patent trolls") that "don't actually produce anything themselves." Obama recommended seven legislative measures that would "stop[ ] this drain on the American economy" and issued several executive actions, including actions to increase patent-ownership transparency; to tighten scrutiny on overly broad patents, particularly software patents; to provide help to "Main Street" businesses threatened by patent trolls; and to step up research and outreach efforts and to engage legal scholars to study patent litigation and reach out to various groups to both provide help navigating the patent system and gather public opinion on the system and its problems. The announcement of this blueprint in June was followed Senator Leahy's introduction of a bill in November (The Patent Transparency and Improvements Act) that would implement a number of reforms specifically targeted at patent trolls to curb their suits against end users of allegedly infringing products. A government study had shown that roughly 19 percent of patent infringement suits today are initiated by non-practicing entities (the less demeaning name for patent trolls). The original bill included provisions allowing end users of an allegedly infringing product to stay an infringement suit to allow the manufacturer of the product, by agreement, to litigate the issue instead; making materially misleading "bad faith" demand letters an unfair trade practice and subject to regulation by the FTC; requiring the USPTO to provide resources and support for small businesses targeted by patent troll suits; requiring plaintiffs in patent infringement suits to disclose the "real" owners of the patents; and requiring all patent holders to disclose any transfers of an interest in a patent to the USPTO.

Then, in January 2014, the president did something in his State of the Union address that very few presidents have done – he mentioned patent legislation. He urged Congress to "pass a patent reform bill that allows our businesses to stay focused on innovation, not costly, needless litigation" and that would stop "frivolous" lawsuits filed by "patent trolls."

While the bill has the support of the president and much of Congress, it has encountered significant opposition from the business community, including various collaborations of Fortune 500 companies. As this article was being written, the disposition of patent troll legislation remains uncertain. It is noteworthy that states are also getting into the patent troll prevention game, with several attorneys general bringing suits against patent trolls and with state legislatures enacting their own patent troll laws.

The AIA – Who Does It Favor?

The America Invents Act (AIA) that was signed into law in September 2011, established new proceedings for challenging the validity of issued and pending U.S. patents. The newly established Patent Trial and Appeal Board (PTAB) would have jurisdiction to adjudicate challenges to patents brought as Post Grant Reviews, Inter Partes Review (IPR), and Covered Business Methods reviews, all of which were created by the AIA.

Since 2012, more than 1,000 challenges have been brought pursuant to these new procedures. The USPTO had predicted that 420 IPR petitions would be filed in fiscal 2013 (October to September), but 563 were actually filed. The USPTO has predicted that 450 IPRs would be filed in fiscal 2014, but only halfway through the year, 540 petitions have already been filed.

The proceedings have drastically altered the patent landscape and have patent owners sitting up and taking notice. Some believe that the PTAB itself is posing a threat to patent rights, as opposed to being a supporter of strong patents. In fact, it was reported that the chief judge of the Federal Circuit recently referred to the PTAB as a "death squad[ ]" that was intent on wiping out patents. Whatever the intent of the PTAB, these new challenges have proven to be more popular and more effective at canceling patents than many, including the USPTO, had anticipated. The reported high success rates will only add more fuel to the fire, resulting in even more challenges being filed.

Additional Resources

For other materials on this topic, please refer to the following.

ABA Web Store

Intellectual Property Deskbook for the Business Lawyer, Third Edition

The Intellectual Property Deskbook for the Business Lawyer, Third Edition, is a valuable and practical "go-to" reference for general practitioners, business lawyers, and corporate counsel who need to quickly learn and understand the intellectual property (IP) issues that arise in various business contexts. This Third Edition is updated and expanded to include two new chapters; updates to existing chapters to reflect recent changes, including the significant changes brought by the Leahy-Smith America Invents Act; and contributions from 20 peer-reviewers. The book contains 20 chapters that are short and readable and include "Traps for the Unwary" and practice tips from over 50 experienced attorneys, two law professors, and a judge. Business lawyers who confront IP issues regularly or from time to time will benefit from this comprehensive resource.

NB: Per https://www.americanbar.org/bin/product ... ?id=214020, the link in the foregoing paragraph, the Intellectual Property Deskbook for the Business Lawyer, Third Edition is no longer available.