APaTS

Cat in the Vat

admin — Mon, 21 Jul 2008 18:14:00 GMT

Look at that! Look at that! Prong Two just stepped in on the mat-or, perhaps more precisely, it showed up in the Federal Circuit's decision in Cat Tech LLC v. TubeMaster, Inc. Specifically, in Cat Tech, the Federal Circuit reviewed whether the changes the Supreme Court decision in MedImmune v. Genentech made to the first prong of the test for declaratory judgment jurisdiction in actions brought by potential infringers impacted the second prong of the same jurisdictional test. The test prior to MedImmune required that the declaratory judgment plaintiff (1) have a reasonable apprehension that the patentee will file suit and (2) conduct "meaningful preparation" to conduct potentially infringing activity. In MedImmune, the Supreme Court rejected the test's first prong in favor of a more lenient "totality of the circumstances" review. Until Cat Tech, however, no decision addressed MedImmune's impact on the second prong. Would it, too, have to go?

The answer- "No! No! It does not have to go!"

Instead, Cat Tech found that the second prong of "meaningful preparation" is still intact - at least as a factor working to determine whether a dispute is immediate and real, even under MedImmune's more lenient standards. Meaningful preparation toward potential infringing activity is important (but perhaps not a required element) in this fundamental inquiry because actual steps taken toward infringement are indicators of both "immediacy and reality."

Here, potential infringer TubeMaster had designed four different configurations of a system for loading catalyst into multi-tube chemical reactors similar to that used by patent holder Cat Tech. The patented system used unique spacing to prevent broken catalyst and dust from falling into the catalyst tubes-thereby preventing uneven or incompletely loaded reactor tubes. TubeMaster's designs also used spacing to prevent uneven loading but the spaces were of a different size.

In addition to generating AutoCAD drawings for each of its four configurations, TubeMaster had successfully manufactured one of its configurations and was ready to deliver products under any configuration "within a normal delivery schedule" after receiving an order. Further, the company did not expect to make substantial modifications to its loading device designs after the beginning of production. The court found these actions to be significant, concrete steps sufficient to satisfy the test's second prong. The fact that TubeMaster had not created any sales literature or begun advertising its alternate configurations was a factor to be considered, but did not negate the immediacy and reality of the controversy.

In Cat Tech the Federal Circuit makes clear that declaratory judgment jurisdiction isn't automatic even when immediacy and reality prerequisites are met. Rather, a district court has discretion in deciding whether to entertain its jurisdiction. Here, the court found most persuasive the fact that, without the exercise of the district court's jurisdiction, TubeMaster would have to "bet the farm"- choose between abandoning its catalyst loaders or risk an award of treble damages in an infringement suit from Cat Tech. TubeMaster convinced the Federal Circuit that its situation was precisely the type of dilemma the Declaratory Judgment statute was intended to ameliorate.

Cat Tech certainly adds a new dimension to the post-MedImmune declaratory judgment landscape. Practitioners on both sides of the patent law aisle will want to take its lessons under serious advisement because:

Whether it's a prong or circumstance of the totality,
Expect a DJ when the controversy becomes reality.

Diagnosis: P.E.D.

admin — Wed, 11 Jun 2008 14:43:00 GMT

Life's a little less good for patent holder LG Electronics ("LGE") since the Supreme Court determined in Quanta Computer, Inc. v. LG Electronics, Inc. that P.E.D - the patent exhaustion doctrine - terminally infected its patent infringement claims. The doctrine provides that a patent holder can only obtain one recovery for an infringement. Once that recovery has been made-by way of a judgment or a license-further enforcement is exhausted. Exhaustion has particular application in circumstances where the patent holder licenses the supplier of a component, but then later seeks to enforce its patent against that supplier's downstream customers.

In LGE/Quanta, the patents at issue covered technology associated with the way microprocessors and other devices access memory over a data bus. LGE had licensed its portfolio to Intel, authorizing Intel to make, use, or sell its products practicing the LGE patents without limitation. Notwithstanding this broad language, LGE did not intend that the license apply to Intel's customers; other sections of the license agreement stated that LGE did not grant a license to third parties to combine Intel's products with other items or components to build a larger system. Intel also agreed to give written notice to its customers informing them that the license did not extend to combinations of an Intel microprocessor with non-Intel products.

LGE sought to enforce its patents against Quanta Computer, who had obtained Intel microprocessors and combined them with non-Intel components to build a complete computer system that practiced the LGE patents. Quanta asserted the protections of the patent exhaustion doctrine. In essentially adopting Quanta's position, the Supreme Court made three rulings. First, primarily to prevent mischief with regard to innocent purchasers, it determined that patent exhaustion applied to method claims as well as apparatus claims.

Next, it held that the license of a component part that does not fully practice a patent can still lead to patent exhaustion when the licensed component part "substantially embodies" the broader patent. The Court determined that LGE's license of the component created exhaustion because "the only reasonable and intended use" of the microprocessor was to practice the patent and because it "embodied essential features of the patented invention."

Finally, the Court found exhaustion applied even to those situations where the parties attempted to inoculate against the doctrine by indicating within its license agreement the desire not to exhaust the patents. The Court explained that the primary question was a licensee's authority to sell products embodying the patent-and found no meaningful limitation in the actual grant to Intel; the contrary language in other parts of LGE's licensing agreement was directed to the conduct of third parties.

Patent holders are wondering just how contagious LGE/Quanta will be. The decision provides ample ammunition for defendants in situations where their component suppliers have some form of license. No doubt such downstream defenders will be putting their agreements under the microscope to check for any relevant limitations.

Certainly patent holders will want to try to immunize their licenses by carefully crafting the authorization language in the section granting the license. The Court suggests that a different result may have occurred had those conditions and limitations expressly limited the grant of the license. Licensors should dispense with strategies based upon intent and focus upon the need to clearly delineate limitations on the grant of authority. Alternatively, patent holders could shift their enforcement efforts to customers and end users, rather than component suppliers.

We predict that litigation regarding the circumstances under which an unpatented component may fairly be viewed as "substantially embodying" a broader invention will become chronic. Litigants on both sides will have to look for opportunities to build a record which either marginalizes or trumpets the importance of the unpatented component. Note that the Court chastised LGE for not demonstrating that the microprocessors at issue could be used in a non-infringing way, but offered little in the way of bright line tests for determining when an unpatented component substantially embodies a patent.

Finally, litigants will have to be alert for the availability of breach of contract claims. The Court expressly stated that its decision did not limit LGE's contract rights, if any. In its ever increasing efforts to stem patent litigation, the Court may have shifted the same technologic dispute into a different substantive legal arena. We don't see how an epidemic like that will leave anyone-patent holder or potential infringer-feeling that life's good.

Bone Appetit!

admin — Thu, 29 May 2008 16:14:00 GMT

In Acumed LLC v. Stryker Corp, the Federal Circuit dishes up a tasty decision on claim preclusion that certainly shouldn't ruin a patent holder's appetite for further litigation. Acumed makes clear that a patent holder's claims against an infringer for multiple versions of a product do not need to be brought in a single serving unless the allegedly infringing devices are "essentially the same"-even if the allegations against additional infringing devices "could be raised" at the same time. While not allowing anyone two bites at the same apple, Acumed may offer patent holders an increasingly rare opportunity to both have, and eat, a slice of patent law cake.

Acumed involved a patent for a medical nail used to fix fractures in human bones. In a first round of litigation, the patent holder claimed that defendant's nail-known as the T2 PHN-infringed its patent. Discovery revealed detailed information that the defendant was also developing a longer version of the T2. However, marketing and sales of the longer nail did not begin until after the close of discovery in the first case.

Patentee Acumed brought a motion to compel production of commercial information regarding the longer screw. It argued that, if the nail was "substantially similar" to the original T2, infringement claims against it could reasonably be swept into the pending litigation. The district granted the motion and then offered Acumed the opportunity to amend its complaint to include allegations against the long version-but cautioned that doing so would postpone the already scheduled trial. Acumed declined to amend, proceeded to trial solely against the original T2 and obtained a verdict of willful infringement which the Federal Circuit affirmed.

Only then did Acumed file a second complaint against the longer version of the T2. The defendant argued that these new claims were precluded by the judgment in the first action because they could have been raised there. The district court agreed and dismissed Acumed's second action. Acumed then appealed.

Reversing the district court, the Federal Circuit reviewed the standards for claim preclusion---the preferred term for the collective concepts of collateral estoppel and res judicata. It ruled that the standard for patent law is whether the device currently before the court is "essentially the same" as the accused device in the prior action. Devices are "essentially the same" where the differences are unrelated to the limitations in the claims of the patent. Despite precedential language which seemed to indicate otherwise, the mere fact that allegations against the additional device "could have been raised" in the prior action does not, by itself, create claim preclusion. Because even the defendant agreed (and in fact argued) that since the longer version of T2 was NOT essentially the same, claim preclusion did not apply.

Patent holders-especially in industries where there are multiple or continually changing models-should keep Acumed on their staples shelf because of the control it seems to impart. It appears that patent holders can control what multiple iterations they challenge and when they do so. This strategic flexibility may also allow patent holders to counter the impact of recent changes in the laws of willfulness by allowing them to reserve willfulness allegations for subsequent actions until infringement is established in the opening rounds of litigation.

Potential defendants aren't just left with the scraps. Declaratory judgment actions and equitable principles of estoppel may blunt the threat of repeated litigation from products not expressly covered by the lawsuit sur la table. And both sides will have to be very careful as to how they draft their allegations and how issues are framed to avoid unintended consequences regarding the scope of any trial which leads to a final judgment. Acumed also reaffirms the importance of securing total freedom from the patent in licensing and settlement and not just of the accused product.

Our view? There's enough meat on Acumed's bones for everyone at the patent law table to have something to chew on. Bon Appetit!

On the Rocks

admin — Tue, 13 May 2008 18:04:00 GMT

We'll give it to you neat. LiteCubes, LLC v. Northern Light Products, Inc. holds that section 271 of the patent statute does not contain that requirement for the federal courts' subject matter jurisdiction. Rather, section 271 states a necessary element of a claim for patent infringement. According to the Federal Circuit's top shelf opinion, a complaint which sufficiently pleads a cause of action under the patent statute establishes federal subject matter jurisdiction regardless of the success or failure of the patent holder in establishing that claim. In other words, establishing subject matter jurisdiction and establishing an infringing act are separate endeavors that patent litigants should not mix.

LiteCubes involved patented technology for glowing artificial ice-cubes. After the jury returned a verdict of infringement, GlowProducts (the d.b.a. of defendant Northern Lights) argued that the district court lacked subject matter jurisdiction under section 271 because its sale of the allegedly infringing product had occurred "f.o.b." (free on board shipment) in Canada. GlowProducts based its challenge on the theory that its sales occurred in Canada due to the f.o.b. shipment. The district court found that the evidence regarding GlowProducts' sales was sufficient to invoke the court's subject matter jurisdiction and entered judgment in the patent holder's favor.

On appeal, the Federal Circuit served up an affirmance, but re-blended the underlying grounds to reflect its views that the limitation of section 271 are not truly jurisdictional but rather elements of the claim to be established. According to the Court, subject matter jurisdiction does not fail simply because the plaintiff might ultimately be unable to succeed on the merits. In its own version of Happy Hour, it allowed GlowProducts to challenge the jury's infringement verdict even though it had not raised it on appeal. The court used its discretion to consider the technically waived issue because it considered the circumstances surrounding the subject matter jurisdiction question to be unusual. Still, it rejected GlowProducts arguments. The court reviewed the place of contracting and performance to determine place of sale. It found that GlowProducts customers were in the United States when they contracted to buy the product and that the product was shipped directly to them in that location. Substantial evidence, the court said, to support the jury's conclusion that GlowProducts sales activities met the occurrence requirements of section 271.

While there was no dispute over claim construction, GlowProducts challenged the infringement verdict. The patent contained a claim which required the use of a filler material that could retain cold when cooled or heat when heated. LiteCubes' expert testified that the filler the product contained performed as required. GlowProducts' expert, while not disputing the scientific accuracy of that testimony, simply disagreed. Based on such conflicting evidence, the court said that jury was entitled to make a choice and credit the testimony of LiteCubes' expert in order to reach the factual determination that it did.

Make the lessons learned here a double.

First, patent litigants who hang their hopes entirely on a duel of experts need to realize they're already in a position of weakness because the jury can legitimately pick either side. Your expert must do more than just offer conclusory disagreements. Such opinions are not particularly persuasive and squander credibility. Experts must both retain credibility and give the jury something substantive with which to work.

Second, businesses that export goods into the United States should scotch the notion that they can rely on the vagaries of the shipment method used to escape liability for patent infringement in the United States. LiteCubes makes clear that the patent statute's extra-territorial reach includes foreign entities that sell infringing goods within the United States-a lesson that surely left the defendant here shaken, not stirred.

Delay of Game

admin — Tue, 29 Apr 2008 15:55:00 GMT

What's the amount of time necessary to separate a patent holder from an infringement verdict? In O2 Micro International, Ltd. v. Beyond Innovation Technology, Co., Ltd., 32 micro seconds was enough - that is, when combined with district court errors regarding claim construction and equivalency. The Federal Circuit's call? The infringement verdict is vacated and the ball goes back to the district court.

In O2 Micro, the patent at issue involved circuitry for controlling the power made available to the backlights used in laptop computers. The patent holder's technology employed feedback loop signals which served (in part) to prevent circuitry damage by reducing power during unexpected events. Because of difficulties during claim prosecution, the patent holder added limiting language to the claim. The additional language stated that the control provided by the circuits would be enabled "only if said feedback signal is above a predetermined threshold." Defendants used similar circuitry in their products; however, in two modes the circuitry also incorporated both a start-up delay and that 32 micro-second delay. Control continued in both these modes even though the signal fell below the patented threshold.

During pre-trial claim construction, defendants argued that the phrase "only if" should mean "exclusively or solely in the event of" and otherwise allowed for no exception. Agreeing with the patentee, the district court found the "only if" language to be plain English needing no construction. The district court also let the patent holder argue infringement under the doctrine of equivalents, despite the amendment. The verdict form used did not require the jury to specify the basis of the infringement finding it ultimately reached.

On appeal, defendants got a replay on the question of the district court's construction of the "only if" language. Even though defendants did not object to the relevant jury instruction, the Federal Circuit found that they had sufficiently preserved the issue on appeal by raising it during the pre-trial construction hearing. Chiding the district court, the Federal Circuit said that trial court has the responsibility to determine the scope of the language at question when ever a dispute arises regarding a claim term-even if the term has a "plain meaning." The allowance of a claim under the doctrine of equivalents was also erroneous because the district court failed to explain how the patent holder overcame the presumption of prosecution history estoppel.

O2 Micro offers some interesting lessons for the patent litigator's playbook. First, it appears to prevent litigants (and courts) from avoiding tough issues of claim construction, and offers some ammunition to challenge the growing court trend of limiting the number of claims to be construed. While the Federal Circuit "recognized" that the district court can't construe every limitation, it offered no specific rules for this new implementation. Litigants who don't want to see infringement issues collapse into the claim construction process will also want to carefully frame the question by asking "How is the infringing device best characterized as operating?" NOT "What is the scope of the claim?"

Important too, the court's determination that for appeal purposes, defendants need not object to jury instruction if the same issue has been "fully litigated" and decided at the Markman stage of litigation. This more forgiving standard certainly gives greater flexibility to litigants in how they comport themselves during the jury charge phase of a trial. In addition, where a court adopts some intermediate construction (i.e., one which borrows from, but does not completely accept, both sides' constructions) this decision places a premium on understanding one's opponent's reaction/position with regard to the construction.

Do-overs like the one in O2 Micro don't just mean more litigation; they can end up costing the whole game. Whether playing for the offense or the D, patent litigators will want to heed the tactical lesson inherent in the decision or else risk seeing the clock run out on their pending claims.

...Eliminates Pesky Patents Too!

admin — Mon, 14 Apr 2008 20:00:00 GMT

Shocking? The Federal Circuit's opinion in Agrizap, Inc. v. Woodstream Corp. doesn't necessarily reach that amplitude. Yet the decision does contain some high-wattage lessons for patent holders, as well as for those seeking to short-circuit the letter (or spirit) of existing confidentiality agreements.

Let's just say this one's a live-wire.

Agrizap held patent rights to certain rodent control technology. The patent at issue included a methodology-known as a resistive switch-that uses the animal's body to complete an electrical circuit. Once complete, the circuit triggers a generator that then dispatches the varmint through electrocution. Agrizap marketed its invention under the brand name "Rat Zapper."

Alleged infringer Woodstream is a nationwide distributor of more traditional pest control products. It entered into a confidentiality agreement with Agrizap which ultimately culminated in the Rat Zapper being marketed under a Woodstream label. Pursuant to the parties' agreement, Agrizap agreed not to compete in those venues where the Woodstream branded Rat Zapper was sold.

At the same time, Woodstream was trying to figure out how to make a similar product itself. Nonetheless, it assured Agrizap that actions taken in furtherance of that goal-like sending the Rat Zapper to China-were for purposes permitted under the parties' agreement. Within three years of entering into its agreement with Agrizap, Woodstream began selling its own resistance-switch based Electronic Mouse Trap (EMT) and Electronic Rat Trap (ERT) in direct competition with the Rat Zapper.

Agrizap brought suit for both patent infringement and fraudulent misrepresentation. After trial, the jury returned damage awards for both claims. Various post-trial motions ensued and the district ultimately entered a final judgment which affirmed the $1.2 million fraudulent misrepresentation award, but overturned as a matter of law, the $1.4 million infringement damages. Both parties appealed.

The Federal Circuit first reviewed the fraudulent misrepresentation claim. It affirmed the jury's award, even though Agrizap never propounded a specific dollar amount for its fraud damages. The court said, as wrong-doer, Woodstream had to bear the risk of uncertainty because Agrizap did introduce general evidence regarding the losses caused by Woodstream's conduct.

The Federal Circuit found that the district had erred in its determination that the patent covering the Rat Zapper was not obvious. Instead, the Federal Circuit said that the Rat Zapper did nothing more than combine familiar elements to yield a predictable result-the very definition of obviousness employed in KSR. Agrizap's evidence regarding commercial success, long-felt need and Woodstream's copying could not overcome the fact the Rat Zapper was basically a combination of previous patents. The Court referenced other patents that made use of animal-based resistive switches, as well as Agrizap's own patent for the Gopher Zapper, which employed a mechanical switch to complete the circuit.

Agrizap illustrates the risks patent holders face under the new rules for obviousness. Those considering infringement litigation will want to do their best to make sure that their own action doesn't become the conduit for their patent's invalidation. Additionally, Agrizap demonstrates the impact extra-patent agreements can have on litigation. Here, good contractual housekeeping kept a significant portion of the damages viable despite an invalid patent. The lesson? To fully assess risk, patent holders who think they smell a rat (or licensees contemplating becoming one) need to look beyond the patents in order to determine which party's most likely to get zapped.

High Wire Act

admin — Fri, 07 Mar 2008 00:09:00 GMT

Consider this a heads up to patent holders thinking of taking a fly at preliminary injunctive relief. In Erico International Corp. v. Vutec Corp. & Wiremaid Products, a split panel of the Federal Circuit seemed to lower the standard of proof necessary to demonstrate invalidity at that procedural juncture. The result? Efforts intended as a warm-up act in the litigation may prematurely move the question of patent validity into the center ring. Without the net provided by the evidentiary standards required at trial, patent holders risk losing more than the motion at hand. With both strategic advantage and persuasive momentum at stake, requests for preliminary relief become feats of bravery fraught with real peril.

The patent holder in Erico didn't appear to be flying by the seat of its pants. The defendants admitted copying the patented design and methodology-a system of using open, flanged "J" hooks to ensure proper tension in the hanging of electrical and communication cables-and the patent holder marshaled significant evidence of secondary indicia of nonobviousness. The district court followed the traditional four part test and granted the patent holder's request for a preliminary injunction, rejecting the defendants' defenses of inequitable conduct, on-sale bar and obviousness.

The Federal Circuit agreed with the district court on the first two defenses. However, the court found that the defendants had raised enough questions regarding the patent's validity on grounds of obviousness to defeat the injunction. To reach that conclusion, the majority in Erico seemed to lighten the burden of proof for defendants claiming patent invalidity at the preliminary injunction stage. It held that evidence which "cast doubt" on the patent and/or demonstrated that the patent at issue "was vulnerable" raised "a substantial question" of invalidity sufficient to deny preliminary injunctive relief. It considered the inventor's own testimony regarding an implicit motivation to combine in the relevant industry particularly important in reaching its determination. Without much analysis of the prevailing abuse of discretion standard of review, the court vacated the injunction and remanded the case for trial.

A vigorous dissent argued that recent case law addressing the issue required a showing of "likelihood of success" on the question of obviousness-less than the "clear and convincing" evidence required at trial, but more than the majority's stated standard. The dissent also took issue with the majority for failing to show any clear error by the district court and for ignoring the evidence the district court did review regarding secondary indicia of nonobviousness.

Erico (and its dissent) spotlight the fact that the Federal Circuit has not yet reached a consensus on the standards to be used for review of questions of obviousness -and the burdens of proof born by each party-when preliminary relief is sought. When in doubt, litigants on either side should prepare a record which meets the standard least favorable to them and then be prepared to shine during oral advocacy. Additionally, secondary indicia and motivations to combine remain critical to an obviousness analysis and patent holders put their rights at risk if they ignore what was going on in the industry at the time of the invention.

Most importantly, Erico illustrates the consequences of ill-timed or ill-executed requests for preliminary relief. When a complete record is either not presented (or ignored) patent holders risk having their litigation spiral into a nose dive from which it may never recover. Whether that's a spectacle you'd rather not watch or the greatest show on earth depends on the location of your seat in the patent litigation bigtop.

When Some of the Parts Equal the Whole

admin — Wed, 20 Feb 2008 20:46:00 GMT

You might want to fast forward through more than the commercials on this one-all the best action is in the finale. In TiVo v. Echostar the Federal Circuit engages in page after page of dense claim construction only to deliver the heart of the opinion in a single, concluding paragraph. There, it upheld the jury's entire damage award of $73 million even though it had reversed the jury's determination that patent holder TiVo's hardware claims had been infringed.

How did the Federal Circuit come up with this plot twist?

First, upon review, it upheld the jury's verdict that all of EchoStar's accused devices infringe TiVo's software patent claims. Second, it found that the damages calculation at trial was not predicated on the infringement of particular claims. Enough, the court said, to affirm the entirety of the damages award entered by the district court.

Let's rewind to review the underlying facts. TiVo introduced the world to the time shifting television technologies known as DVR about ten years ago. Since then that technology-which allows television viewers to record, store and playback television broadcasts-has become immensely popular. In 2004, TiVo sued EchoStar for infringement of its hardware and software DVR patent claims. EchoStar operates the DISH Network brand of satellite television and offers competing DVR technologies to DISH Network customers. TiVo has partnered with DIRECTV, DISH Network's biggest competitor.

At trial in the district court, the jury found that EchoStar had infringed both the hardware and software claims of TiVo's patents. The jury then awarded the $73 million in damages and the trial judge ordered a permanent injunction to stop future infringement. The injunction was subsequently stayed pending appeal.

On appeal, the Federal Circuit concluded that EchoStar's competing DVR technology did not infringe TiVo's hardware claims but did infringe the claims of its software patent. The court's unusual construction of the claim term "a" or "an" proved key to TiVo's success. Usually, "a" or "an" are construed to mean one or more. Here the court construed the claim term to "an MPEG stream" as limited to a single MPEG stream because "the context clearly evidences that the usage is limited to the singular."

The jury's damage calculation did not divide out the portion of damages associated with the hardware invention and the portion associated with the software invention. Consequently, the Federal Circuit found infringement of the software claims alone sufficient to sustain the entire judgment. The court also dissolved the stay of the permanent injunction and directed the lower court to assess additional damages based on continued infringement during the appeal.

Kudos to TiVo for understanding that not every starring role requires a speaking part. By not staking to much ground on any particular portion of its damage claim it demonstrated the art of saying best by saying nothing at all and proved that silence truly can be golden.

Interestingly, EchoStar (DISH) issued a press release stating that the injunction was meaningless because its engineers had already developed and deployed "non-infringing" ‘next-generation' DVR software to its customers.

Has EchoStar produced a truly non-infringing technology? Will TiVo trust EchoStar? Is their dispute really over?

Stay tuned here and we'll bring you the answers if, and when they happen.

Just Not Cricket

admin — Fri, 08 Feb 2008 20:02:00 GMT

Fair play counts in patent litigation as well as in the game of kings. In Innogenetics N.V. v. Abbott Laboratories, accused infringer Abbott played fast and loose with the trial court's procedural rules. It also took a cavalier approach to the substantive underpinnings of arguments advanced on appeal. The result? Both the district court and Federal Circuit cried foul-and Abbott saw exclusion of key evidence and forfeiture of critical claims as a consequence for its unsportsmanlike conduct.

The underlying case involved technology related to diagnostic tools which both detect and classify Hepatitis C virus (HCV) genotypes in a biologic sample, allowing a more tailored patient treatment. The case is noteworthy for the court's treatment of Abbott's rather loose treatment of the rules, which occurred throughout the course of that litigation. As a result, the district court rejected Abbott's proposed limiting claim construction and entered judgment as a matter of law adverse to Abbott on the issues of infringement, obviousness, anticipation and inequitable conduct.

Originally, Abbott advanced a claim construction predicated on an overly-formulistic definition of the word "as," in order to limit the patent's claims to contemporaneous detection of the key genetic material. The Federal Circuit rejected this argument as "dictionary shopping" and took Abbott to task for not marshalling a record based more upon how one of ordinary skill in the art would understand that term.

Next, Abbott tried to rely upon a non-infringement argument that its method of detection was outside the scope of the patent because it was not known to ordinary artisans at the time of the patent filing. Unfortunately for Abbott, it waited until the eve of trial to raise this argument when it tried to insert a new jury instruction into the proposed set of instructions. The Federal Circuit looked to regional circuit law (the Seventh Circuit) to affirm the district court's decision that Abbott had forfeited that issue by not raising it reasonably in advance of trial. (As an aside, the court also found that the substantive argument lacked merit as well.)

Abbott's pre-trial behavior also affected its affirmative defenses. Abbott ignored the district court's schedule for the filing of supplemental expert reports on the issue of obviousness. Innogenetics persuaded the district court to exclude Abbott's late supplemental offering. Even though Abbott knew the district court's order contained errors regarding the scope of exclusion, it ignored the rules that such challenges should be raised prior to the appeal.

On appeal, the Federal Circuit quickly affirmed the district court's decision that Abbott lacked the necessary evidentiary underpinnings for its obviousness defense. Analyzing the original (allowed) expert report, the court found it both conclusory and vague. The court explained that the Supreme Courts' seminal decision in KSR does not relieve a defendant from demonstrating that particular combinations render a patent obvious, even where a problem was well-known and there was motivation to solve it. With regard to the excluded report, Abbott claimed it could have offered non-expert testimony regarding the requisite motivation. The Federal Circuit again affirmed the district court's decision, relying upon Seventh Circuit precedent regarding the trial court's ability to manage its own docket. The Federal Circuit faulted Abbott for not raising the erroneous order earlier and for offering only speculation as to what lay witnesses could have established.

Litigants on both sides should take note. The Federal Circuit showed little tolerance for Abbott's rather lax attitude toward the rules. It looked to regional circuit law to set the rules of conduct for procedural issues and it used that same law in order to approve consequences for their breach. Thus, despite the universality of patent law, an understanding of differences in the various circuits regarding procedure may very well be outcome determinative.

Determinative too-backing up key claims and defenses with an adequate record. Buzz words won't do. The Federal Circuit repeatedly noted that Abbott simply failed to provide details from the record to support its claims. In particular, the court said that, even in light of KSR, accused infringers cannot rely upon unsupported hindsight to explain how or why references would be combined by those of "ordinary skill in the art."

Clearly, the rules count. Innogenetics reminds us that litigants who repeatedly ignore them may find themselves on a very sticky wicket-losing both the strategic advantage and ultimately, perhaps, the entire game.

The Sound of One Patent Clapping

admin — Tue, 29 Jan 2008 18:52:00 GMT

In SRI Int'l v. Internet Security Systems, the district court heard what it needed to grant summary judgment of invalidity. The district court found that a paper that had been published more than a year prior to the patent application invalidated the patents under review. The Federal Circuit didn't chime in. Why? Because in this electronic world what is "publicly accessible" has taken on new and different aspects from our previous hardcopy days.

The patents at issue involve technology for cyber security and network intrusion detection. Patent holder SRI actively participated in work-shops involving peer review and posted two papers describing details of its inventions to a FTP server more than a year prior to filing its patent application. When SRI brought suit against Internet Security Systems ("ISS"), ISS used the papers as the basis of an invalidity counter claim. ISS argued, and the district court agreed, that each of the two papers were anticipatory prior art which rendered SRI's patents invalid.

However, the Federal Circuit found questions of fact regarding the publication of one of the papers-known as the "Live Traffic" paper. Specifically, the question became whether posting the Live Traffic paper to the FTP site met the "public accessibility" requirement under §102 (b). The Federal Circuit noted that public accessibility is determined on a case by case basis. Here, there was no index or catalog to the directory on the FTP site where the paper was located. The court felt that nothing in the file placement or name used to describe the paper would have allowed one skilled in the art to navigate through the directory structure to the specific paper in question and cited the fact that the inventor provided the conference chair with the full FTP address in order for him to access it. Second, the only person outside SRI who knew of the existence of the paper on the FTP server was the conference chair-a fact confirmed by evidence that no one actually accessed the paper during the seven days it was posted to the site.

In the Federal Circuit's view, these facts were equivalent to putting up posters at a conference which no one advertises and to which no one goes. Vacating the grant of summary judgment, the Federal Circuit remanded the case with instructions to the district court to conduct a more thorough determination of the factual questions regarding public accessibility of the Live Traffic paper based on additional evidence and the Court's opinion.

Judge Moore, dissenting, strongly disagreed. Judge Moore cited evidence that the inventor had directed people to other locations on the FTP site at least seven times and that the site had been referenced by relevant Google user groups more than 70 times. Asserting that the community of interest would have no difficulty navigating through the FTP site's hierarchies, she concluded that the posting of the Live Traffic to the FTP site was the equivalent of placing a book with an obscure title on the shelf of library with a specific subject matter. Because of the internet, Judge Moore said, anyone, anywhere, could access, download and/or print a copy of the paper during the seven days the paper remained on the site. Enough, according to the dissent, for publication to have occurred.

SRI illustrates how new methodologies of information dissemination continue to impact inventions and patentability-particularly in emerging industries. Leading edge innovators must balance the credibility (and funding) that often ensues from peer review and approval with the very real risk that disclosures made during that process can impact patent validity. Inventors on the road to a patent application will want to heed the warning inherent in the SRI decision-pay attention to both the timing and methods by which key invention information is transmitted or risk future challenges to patent validity. On the other hand, those facing infringement claims may wish to broaden the scope of their discovery inquiries in order to assess whether a valid patent actually exists by asking to whom, when and just how inventors communicated key invention information.

With ever-emerging mediums by which information can be transmitted, shared and reviewed, we predict disputes regarding public accessibility to continue. After SRI we wonder if emerging technology publications will be like trees falling in the forest - impacting a patent's validity only if someone is there to see them.

This Token Good for One Remand

admin — Fri, 11 Jan 2008 22:17:00 GMT

In Hyperphrase Technologies LLC v. Google, Inc., the Federal Circuit gave patent holder Hyperphrase what it needs to take one more trip on the patent litigation merry-go-round - but restrictions do apply. Opponent Google gets off the hook for most of its alleged acts of infringement and the opinion is nonprecedential. Nonetheless, the Federal Circuit's decision-wherein the district court's grant of summary judgment to Google for non-infringement was affirmed in part, vacated in part and then remanded-offers some interesting tactical lessons, particularly to those getting ready for their own appellate ride.

The patents at issue in Hyperphrase covered systems and methods for contextually linking computerized records. Hyperphrase alleged that two Google search-related products-AutoLink and AdSense-infringed its patents. AutoLink serves the general public. It identifies strings of characters called tokens within a web page and automatically turns each of them into a hyperlink to a specific uniform resource locator ("URL"), essentially directing the user's web browser to send the token to Google's servers. Once Google's servers receive the token, it redirects a properly formatted URL to the user's browser to allow access to relevant information from a different source.

The AdSense product is targeted at corporate clients wishing to advertise on the web. It coordinates advertiser content with contextually related web pages. Advertisers supply Google with online advertisements for a fee. When a user accesses a web page, AdSense automatically scans the webpage's content, reading all the words on the page and looking for frequently repeated or recognized combinations of words. From this data, AdSense attempts to discern the general topic of the web page and uses this analysis to select and then display advertisements of likely interest.

The district court determined that summary judgment was appropriate by using restricted constructions of two key patent claim terms. The first term the district court focused upon was "data reference." It construed the term as referencing a link to a single specific record; i.e., one and only one record. Under that definition, the district court found that Google's AutoLink did not infringe because, in many circumstances, the tokens were linked to multiple records and references. Using a similarly restricted definition of the patent claim term "address format," the court determined that AutoLink did not infringe one of the asserted patents which required the use of a common address format by both the processing device and the database.

As for AdSense, the court held that the product's topical and key word analysis did not infringe because it did not directly link any references on the web page to other records, but rather used the analysis of the website as only the initial step in determining whether to link particular advertisements.

On appeal, the Federal Circuit affirmed the district court's decision regarding those patent claims containing the "address format" limitation and further affirmed the district court's decision with regard to the AdSense product. The Federal Circuit reversed and remanded, however, with regard to the issue of infringement of the AutoLink product.

Key to Hyperphrase's (albeit) limited success was its ability to successfully persuade the Federal Circuit that the district court had imposed an unduly narrow claim construction of the term "data reference." First, it focused upon the exact wording of the definition in the patent specification. The specific language used contained no limitations or requirements that a reference be linked to "one and only one" record. Hyperphrase also directed the Federal Circuit to a few examples in the specification whereby a link was made to multiple records. Given these arguments, the Federal Circuit had no trouble determining that the district court had improperly imported limitations from the preferred embodiment onto the claim.

However, the Federal Circuit remanded the ultimate issue of infringement to the district court because there was no record with regard to the presence of any other claim limitation. The Federal Circuit was unwilling to render a determination of infringement without an adequate record. Now, Hyperphrase faces an additional round of briefing and proceedings. Hyperphrase would have been well served to either seek admissions from Google regarding these other elements or to have included within its appellate brief sufficient materials for the court to address the other claim elements. It is unclear whether any of those other claim elements were in dispute, and if so, what steps Hyperphrase took to force the district court to confront those issues as well, under the rationale that claim construction should not be conducted in a piece-meal fashion.

In affirming the district court's decision of non-infringement regarding those patent claims which contained the "address format" limitation, the Federal Circuit did not rely upon any particular construction of the term. Rather, the court focused at great length upon how the AutoLink product operated similarly to the prior art that was discussed in the specification of the patent. In particular, the Court noted that the patent specification had criticized prior art systems which required an intermediate processing step involving address translation, rather than using a common address. The Court thus adopted a very common sense approach to the infringement issue. Litigants often focus upon a fine parsing of claim language to assess infringement, often ignoring the fact that a patent's discussion of how the claimed subject matter is an improvement over the prior art can serve as an effective tool for framing claim construction and infringement arguments.

Finally, the Federal Circuit noted that the district court's conclusion that the AdSense product did not infringe was not based upon any particular construction of the term "data reference," but simply on the fact that neither AdSense's topics nor key words referred to any of the advertisements ultimately linked to them. The Federal Circuit's decision to affirm this conclusion is striking in that it is not tied to any particular claim language, but rather to general characterizations about how the patented system operates. Using an Elvis Presley example, the Federal Circuit noted that a web page dedicated to Elvis Presley's movies could generate an ad for Apple's online music store because both the page and the ad relate in some way to the subject of "rock music artists." The accused product generated this contextual relationship even though neither that phrase nor any words in the actual ad ever appears anywhere on the original web page.

Without going into great detail, the Federal Circuit concluded that the general linking of related topics somehow fell outside the teachings of the patent, or a fair understanding of the word "reference," even under the doctrine of equivalents (e.g., "Both AdSense topics and key words are so far a field of the meaning of data reference as used in the asserted claims that no reasonable fact finder could conclude that AdSense performs substantially the same function in substantially the same way"). The decision does not reflect what type of record, if any, Hyperphrase marshaled with regard to the doctrine of equivalents. However, the cursory treatment by the Federal Circuit suggests that more can or should have been done with regard to this issue. While the AdSense product may not have used the web page content as the sole basis for a linked reference, it clearly had some impact on which advertisement would be ultimately linked to the page. The issue should have been whether the additional steps performed by the AdSense product somehow changed the essential character of the initial step of the analysis. Clearly, how the inquiry was framed had a significant impact on the Court's conclusion.

Hyperphrase's insights into patent litigation practice offers up some interesting strategic guidance for all patent litigation practitioners, making it, we believe, more than worthy of the token of our attention.

Quantity 10; Quality 0

admin — Fri, 07 Dec 2007 19:10:00 GMT

In z4 Technologies Inc. v. Microsoft Corp., Microsoft learned that the rules for mud and appellate arguments aren't always the same-at least not in the Federal Circuit. Apparently, following the old adage that something should stick if enough is flung, Microsoft offered up a bevy of alleged errors, arguments and attacks on appeal in an effort to defeat z4's $115 million patent infringement verdict. The Federal Circuit acknowledged that many of Microsoft's arguments were technically correct. Nonetheless, it affirmed the jury's verdict because it found that all the issues raised by Microsoft were either harmless or not substantial enough to overturn the verdict-holding fast instead, it appears, to that one about the wheat and the chaff.

At issue was z4's patent for technology that prevents software piracy and illicit copying and unauthorized use of computer software. Specifically, z4's invention created a multi-step user authorization scheme requiring users to re-register their software after an initial grace period. Users had the option of re-registering manually or "automatically" using an electronic mode. Both systems enabled the comparison of key information from the initial and secondary registrations in order to verify the registrant as an authorized user.

z4 sued Microsoft, alleging that the "Product Activation" feature in Microsoft's "Office" and "Windows" application software infringed its patent. (Similar claims against Autodesk were settled before trial). Microsoft denied infringement and sought to invalidate the relevant patents on grounds of obviousness and anticipation. After a lengthy trial, the jury returned a verdict of willful infringement and awarded damages in the amount of $115 million, which the trial court enhanced by $25 million, along with an award of attorneys' fees. After bringing, and losing, various post-trial motions, Microsoft appealed on a multiplicity of issues.

The Federal Circuit systematically dismantled each issue Microsoft raised. Microsoft challenged the district court's construction of the term "user" to mean a person or a computer. Agreeing with Microsoft that under the terms of the patent a "user" couldn't be a computer, the court went on to reject as "artificial and inconsequential" the non-infringement argument Microsoft had attached to the construction of the term. The patent specifications described a methodology based on computer specific information and other claim language referenced using computer specific information as a basis for the authorization code. Ample evidence, the Federal Circuit found, for a jury to conclude that Microsoft had infringed the patent.

Next, Microsoft challenged whether there was sufficient evidence for the jury to conclude that its software did not have the requisite "authorization code" because there was not a unique code for each copy of the software; i.e., one authorization code could be used with a number of revisions/versions of the software. The court side-stepped the question of whether the claim required the particular one-for-one relationship by characterizing Microsoft's argument as at best identifying non-infringing modalities, stating: "We are unpersuaded by Microsoft's assertion that it does not infringe because a single copy of the accused software can be installed on an unlimited number of machines using a single product key."

Microsoft's invalidity defenses faired no better. Microsoft founded its anticipation argument on one of its own products -a Licensing Verification Program ("LVP") embedded within a 1998 software product called Brazilian Publisher ("BP 98"). Microsoft alleged that the district court erred when it required that BP 98 "stop piracy" in order to qualify as invalidating art for purposes of anticipation. It claimed that BP 98's intended purpose of "reducing piracy" should have been sufficient. The Federal Circuit agreed--but then went on to find "substantial evidence" from which the jury could find that BP 98 failed even that purpose because the product never actually worked. (Interestingly, the key evidence regarding the problems with BP 98 came from a document which Microsoft was found to have "improperly withheld" until the day before trial started).

The Federal Circuit also rejected any claim of error based on jury instructions, including an instruction regarding obviousness based on the pre-KSR "teaching, suggestions or method" (TSM) standard. Microsoft claimed the holding of KSR required a new trial because of KSR's broader considerations regarding obviousness. Not so, the Federal Circuit held. Even under KSR (and the factors enumerated in Graham v. John Deere), a prima facie case of obviousness requires something more than the conclusory testimony of an expert-evidence, the court found, Microsoft had failed to produce or identify.

Perhaps most painfully, the Federal Circuit refused Microsoft's request for a reconsideration of foreign sales damages in light of the Supreme Court's decision in Microsoft v. AT&T. Significant questions existed whether Microsoft had properly preserved a §271(f) question for appeal in the district court. However, the Federal Circuit chose to address the issue on substantive grounds. The record showed that the jury did not and could not have relied on §271(f)'s provision in determining damages. Both the complaint and jury instruction were based on the provisions of §271(a), which addresses infringing products made, used or sold in the United States and z4 never argued any §271(f) type infringement. Though Microsoft claimed that the same "golden master" distribution system at issue in AT&T was in use here, it never offered evidence segregating foreign sales from domestic sales at trial and it never argued against the appropriateness of including foreign sales damages under §271(a). Without such evidence, there was no properly argued or preserved foreign sales issue.

Admittedly, one would expect a litigant faced with an adverse verdict in the amount of $115 million to marshal an aggressive, all encompassing appeal. Nevertheless, it is clear that in its efforts to scour the record for every conceivable error, Microsoft based its arguments more on formalities and linguistic technicalities than on the substance of the technology at issue. In its effort to be comprehensive, Microsoft appears to have ignored the fact that appellate courts - like juries - respond to themes and can and will focus upon the essentials of the patent over its less relevant technicalities.

Our take away? Only an idiom would lose the forest for the trees.

Side-Swiped

admin — Mon, 19 Nov 2007 21:01:00 GMT

We know who T-Boned the In re Translogic Technology, Inc. patent holder and their $86.5 million patent infringement verdict. Patent holders everywhere should be on the lookout for one of those new "KSR" cars bearing license plates with the letters "P.T.O." . . .

In re Translogic Technology, Inc. involved a patent covering a multiplexer-a type of complex electrical circuit. Patent holder Translogic initiated infringement litigation against alleged infringer Hitachi Limited in 1999. In 2003, a jury upheld the validity of Translogic's patent. In May 2005, following a finding of induced infringement, Translogic received an $86.5 million jury award for patent infringement damages. After the jury's verdict the district court entered a permanent injunction.

Shortly after the original filing of the district court litigation, Hitachi initiated the first of five third party requests for re-examination of the relevant patent in the PTO. The PTO merged the various requests into a single, separate proceeding which wound its way through the PTO during the pendency of the district court action. In 2004, the PTO rejected a critical portion of the Translogic patent on the grounds that the claims would have been obvious at the time of invention. In July of 2005, following Translogic's attempt at claim amendment, the PTO affirmed its rejection of the Translogic patent.

Various appeals ensued. The federal circuit consolidated them (staying the injunction) and-ouch-went with the PTO's determination. Cleaving to the dictates of the Supreme Court's decision in KSR International Co. v. Teleflex Inc. (while first making short work of a disputed claim limitation), the Translogic court served up a crash course on obviousness.

Patent holders navigating an obviousness-based validity challenge face a rocky road. After KSR, the relevant inquiry is whether differences between the patented subject matter and the prior art would have been obvious at the time of invention to a person of ordinary skill in the art. The old "teaching suggestion and motivation" ("TSM") test for obviousness continues its death spiral. Instead, KSR dictates that "common sense" and "flexibility" take precedence in determining whether an invention is obvious in light of prior art. All prior art is considered part of the public domain and it doesn't matter whether the art that suggests the new invention is in a different field or solves a different problem. As we predicted when KSR first issued, alleged infringers have freer reign to string together disparate inferences from different fields of endeavor to show that all elements of an invention existed in prior art references.

Despite five years of litigation, a jury's verdict and the issuance of a permanent injunction by the district court, patent holder Translogic could not overcome KSR's heavy toll. Translogic attempted to demonstrate that the prior art reference offered by Hitachi taught away from its invention because it involved a logic solution rather than multiplexers. The court disagreed, saying that one with "ordinary skill" in the art (circuitry) would look to logic for likely solutions. Translogic's other attempts to distinguish the prior art met a similar fate-easy dismissal under KSR's requirements that the invention exceed the capabilities of someone with ordinary imagination skilled in the art.

We wonder whether anyone took a wrong turn. The opinion does not discuss whether Translogic told their invention story in an effort to demonstrate the requisite amount of novelty. Nor does it discuss whether Translogic offered evidence of market-based motivations like long-felt need and the failure of others to offer a satisfactory competing product. Still, allowing an alternative proceeding to obviate five years of litigation and the work of the district court should give litigants and their trial counsel pause. Certainly, this decision creates an incentive for alleged infringers to utilize the PTO as an alternative forum for dispute resolution-"tire kicking" that, at best, may further complicate patent litigation and at worst, may have the undesired effect of wasting judicial resources.

Patent holders need to buckle up. Patent litigation has become a much riskier undertaking. Now, more than ever, the foresight of experienced counsel may prove to be the difference between patent holders who walk away from patent litigation and those who crash and burn.

By Any Other Name

admin — Tue, 06 Nov 2007 18:46:00 GMT

Take a whiff of the Federal Circuit's opinion in Paice LLC v. Toyota Motor Corporation. The court-imposed "ongoing royalty" (following a jury decision of patent infringement under the doctrine of equivalents) smells a lot like a compulsory license agreement to us. While the court made sure to distinguish its arrangement from traditional "compulsory licenses"-- where anyone who meets certain criteria has congressional authority to use that which is licensed-the impact is the same. In certain instances, parties in an infringement action who can't or won't agree now face the possibility of a forced, ongoing relationship, the terms of which neither party ever approved.

We've long suspected the potential availability of such a remedy. The facts of Paice reveal the particular circumstances where such court imposed "unions" may arise. In Paice, the patent holder claimed that Toyota's hybrid vehicles infringed its patents for hybrid drive shaft technology. While the jury found no literal infringement, it determined that relevant features of Toyota's hybrid cars (the Prius II, the hybrid Highlander and the Lexus RX 400h) infringed Paice's patents under the doctrine of equivalents. The jury assessed damages at an amount equal to approximately $25 per accused infringing vehicle.

After the verdict Paice sought to permanently enjoin Toyota from further manufacture or sale of the infringing vehicles. The district court applied the traditional four-part test for injunctive relief. It concluded that the situation at hand did not meet the requirements necessary for a permanent injunction-particularly, because Paice could not show irreparable injury as it does not actually manufacture any competing goods. However, rather than leaving the parties to sort out how they would deal with future acts of infringement, the court imposed an "ongoing royalty" for the life of Paice's patent. Under the district court's order, Toyota was required to pay Paice $25 for each of the infringing hybrid vehicles it sold.

Paice appealed, alleging both that the court's order exceeded the authority of the patent statute and that it was entitled to a jury trial to determine the appropriate rate of any ongoing royalty. The federal circuit had almost no trouble addressing either argument.

First, the Paice court reviewed 35 U.S.C §283, which authorizes the imposition of an injunction in order to prevent the violation of patent rights. The query for the court in the instant case was whether "an order permitting use of a patented invention in exchange for a royalty is properly characterized as preventing the violation of rights secured by the patent." (Emphasis in original)

The answer? Yes-but, the court cautioned, not always. Rather, when infringement is present and an injunction is not warranted, district courts should first encourage the parties to negotiate a license agreement themselves. (The concurrence argues that this step should be mandatory-and that district court in the case in chief improperly skipped it). District courts are only to step in and assess a "reasonable royalty" themselves if the parties fail to come to an agreement on their own.

To survive review, the record must reflect sufficient information to determine whether the royalty set by the court meets standards of reasonableness. District courts may take additional evidence to help set the rate. Here, the record did not contain enough information to determine whether or not the district court had abused its discretion. The federal circuit remanded for the sole purpose of establishing the appropriate royalty rate.

The Paice court made clear that district courts have the power to set the rate of this type of "ongoing royalty" without running afoul of the Seventh Amendment's requirement of a jury trial. Because the royalty arises out of the court's equitable powers it is "monetary relief not properly characterized as damages."

Paice future implications remain unclear. Infringers may be less willing to come to the bargaining table-if they can duck an injunction and just face royalties anyway, why bother? Customers may claim implied licenses or may seek to re-negotiate if the court imposed rate is more advantageous. Patent holders may have to spend more time and effort making sure all is well vis-à-vis patent rights and infringement.

Our advice? Keep your nose clean-since Paice seems to add "your licensee friends" to the list of things you just might not be able to pick.

Elbow Room

admin — Wed, 03 Oct 2007 13:38:00 GMT

Divided patent infringement occurs when multiple parties act jointly in order to infringe a single patent claim. Thanks to the Federal Circuit's decision in BMC Resources, Inc. v. Paymentech, Ltd., a party accused of such infringement now knows exactly how far they need to go in order to escape liability - and the answer's easily within reach. According to BMC, as long as the parties act at "arm's length" - and no one entity performs or controls each and every step or element of a claimed invention - no joint infringement occurs.

BMC involved a method patent for a multi-step process allowing the use of debit cards in automated bill payment systems without the need for a PIN - a Personal Identification Number. Patent holder BMC's payment method combined steps from several different participants, including the payee's agent, a remote payment network (for example, an ATM network), and a card issuing financial institution. The relevant patent combined all necessary steps in a single claim.

Alleged infringer Paymentech, which processes financial transactions for clients of third parties, initiated a similar PIN-less debit card payment service. Like BMC, Paymentech's system utilized multiple participants. The parties agreed that Paymentech did not perform every step of the method at issue.

Still, BMC argued that Paymentech's conduct constituted infringement under the decision in On Demand Machine Corp. v. Ingram Industries. BMC claimed that On Demand created a new standard for infringement by multiple parties whereby a showing of participation and combined action sufficed to prove joint liability. BMC staked its position on language within On Demand which seemed to offer protection for patents issued to new and useful invention that cannot be performed by one person.

Both the trial court and the Federal Circuit rejected this reading of On Demand - and with it any suggestion of the existence of a conspiracy to infringe cause of action. Instead, the Federal Circuit firmly restated the well-established rules for joint liability in patent law: Without evidence that a single party controlled or directed each step of the patented process there's no viable divided infringement action.

Direct infringement claims continue to require a showing that the party accused of infringement has violated each and every element of the claimed method or product in order to be held liable for infringement. Similarly, indirect infringement - which occurs when a defendant participates in or encourages infringement but does not directly infringe the patent - requires a finding that some party among the accused actors has committed the entire act of direct infringement.

An alleged infringer cannot escape liability for direct infringement by having someone else carry out one or more of the claimed steps on its behalf. Such vicarious liability will only attach, however, upon a showing that the party charged with infringement had direct control of the conduct of the acting party.

The rule holds true when the alleged divided infringement involves multiple parties. In Cross Medical Products v. Medtronic Sofamor Danek (a case in which we represented Medtronic Sofamor Danek), we successfully argued that the acts of surgeons implanting the accused apparatus shouldn't be attributed to the medical device manufacturer simply because the medical device manufacturer's representative appeared in the operating room. Without the requisite level of direct control of the multiple parties, no direct infringement occurs just because of the involvement of multiple parties.

The BMC court recognized that the established rules may allow parties acting in concert to enter into arm's length transactions to avoid infringement, but felt that such concerns could be offset by proper claims drafting. Certainly, proper upfront evaluation of claims will help determine the scope of patents and a party's potential liability.

But we believe that analysis of divided infringement claims will now hinge on the relationship between the parties - particularly in business method patents. Advice from experienced patent litigation counsel is essential. BMC clarifies that no joint direct infringement occurs simply because the party's combined actions serve to meet every element or step of a method claim. Accordingly, a detailed assessment of the nature of the relationship between those taking the joint action becomes the key determinative - whether deciding to sue or in the defending against allegations of divided infringement.

Now that's something we like - a standard you can, almost, reach out and touch.