APaTS : Invalidity

Yours, Mine and Ours

admin — Wed, 10 Jun 2009 18:29:00 GMT

Sometimes, the merger of two companies requires a sorting of the Cinderellas from the ugly stepsisters when it comes to pre-existing contractual relationships. The decision in Epistar Corp. v. International Trade Commission involves one such blended family tale. There, after a merger, the alleged infringer found itself with separate licensing agreements that both prohibited and allowed invalidity challenges in future litigation with the same patent holder. The patent holder claimed the agreement that precluded invalidity challenges governed and the International Trade Commission agreed. The Federal Circuit reversed and remanded, finding that the merger, in and of itself, was not enough to prevent the invalidity defense from coming to the dance.

The patent at issue in Epistar covered technology for LEDs. Both alleged infringer Epistar and the company with which it merged (UEC) had entered into settlement agreements with the patent holder in prior infringement actions. Epistar agreed to pay a licensing fee for certain products, but retained the right to challenge the patent if the patent holder sued Epistar in the future. In its license, UEC agreed (prior to the merger) that neither it, nor its successors, could challenge the validity of the patent at issue.

The International Trade Commission ruled that the agreement UEC had with the patent holder precluded Epistar from contesting the validity of the patent at issue with respect to any UEC or Epistar product. However, the Commission failed to acknowledge the separate agreement Epistar had with the patent holder which preserved Epistar's right to challenge patent validity with respect to Epistar's products. The Commission later explained that though it had failed to take into account the Epistar license, Epistar could not challenge the decision because it became final when the Commission declined review.

On appeal, the Federal Circuit overturned the Commission's final determination and found that the agreement Epistar had with the patent holder governed its right to contest the validity of the patent with respect to its products. The patent holder could not use the UEC agreement to gain any further preclusion because that agreement only covered UEC product lines. Because Epistar's separate agreement clearly preserved Epistar's right to contest the validity of the patent in other contexts, the patent holder could only limit Epistar from asserting patent invalidity as to the product lines it acquired from UEC. It could not use the UEC preclusion agreement to reach products that agreement didn't cover. In other words, the patent holder could only preclude Epistar to the extent which UEC was formerly limited.

Epistar's moral? You can't use a merger to cram one license agreement's claim preclusions into a separate agreement in order to encompass a successor's products. Instead, both sides to a license agreement (even one negotiated in the throes of litigation) need to remember that corporate mergers, marriages, dissolutions and divorces are a fact of modern life and to plan accordingly. Then, one hopes, patent holders and the alleged infringers who have become their licensees will have an agreement that fits so that both can live happily ever after.

Tilt

admin — Wed, 15 Oct 2008 01:00:00 GMT

In Aristocrat Technologies, Inc. v. International Game Technology, the accused infringer thought they'd hit the jackpot by convincing the district court to hold a patent invalid due to "Improper Revival" during patent prosecution. The district court paid out on the defense and granted summary judgment on the defendant's behalf. On appeal, the Federal Circuit invoked house rules and held that procedural irregularities in the prosecution of a patent just isn't in the hopper of defenses available under § 282 of the patent code--and took the win away.

The patents at issue in Aristocrat covered electronic slot machines technologies. During prosecution, the patent holder missed a payment by one day and the PTO mailed a notice of abandonment. The patent holder filed a petition to revive the application, claiming that the delay was "unintentional." The PTO granted the petition, the first patent issued, and then a related second patent subsequently issued.

The patent holder sued for infringement of both patents. The accused infringer argued that the patent holder had failed to show an "unavoidable delay" (required by the regulations) when it revived its patent. It claimed this failure meant the patent application had been improperly revived and that the application should be deemed abandoned, thereby invalidating the first patent and anticipating the second one. The district court agreed and entered its summary judgment ruling.

Reversing, the Federal Circuit held that an "Improper Revival" defense wasn't in the cards. The Aristocrat court said that prosecution defects aren't available as an invalidity defense because such defenses are expressly limited to novelty, utility and non-obviousness, the "conditions of patentability." Nor could the defendants avail themselves of § 282's catch-all provision. The court ruled that the provision--which covers "any other fact or act made a defense by this title"--applied only to an action made a defense by the title, and nothing in the code expressly recognized Improper Revival of an abandoned application as a defense.

The court emphasized that its ruling was not intended to excuse conduct rising to the level of prosecution laches or inequitable conduct, particularly when the conduct alleged includes any affirmative misrepresentation of material fact coupled with an intent to deceive. Interestingly, the Federal Circuit expressly avoided the question of whether an "unintentional" delay amounts to an "unavoidable" delay under the code.

For the Aristocrat court, the defendant's argument turned out to be no better than a wooden nickel. The decision shows that to have a winning combination, creative requests to extend the law need to be grounded on a proper consideration of the entire statutory framework and the canons of statutory construction. Aristocrat also shows the importance of not gaming the PTO system. Here, there was ample evidence that the patent holder's failure to make the timely payment was an honest mistake--not an effort to get around procedural rules the Federal Circuit respects. Other facts may have edged the court into a consideration of the equities involved--even in light of the court's recent decision in Star Scientific Inc. v. R.J. Reynolds Tobacco Co.

And all patent gamers should take note of what Aristocrat didn't decide. Did the patentee's conduct truly satisfy the code? Is something "unintentional" sufficiently "unavoidable" to satisfy the Patent's Office regulatory requirements? These questions remain unanswered and a defense of "Improper Revival" may be available before the PTO, even if it isn't in district court. This may give new impetus to reexamination proceedings as accused infringers may be willing to wager that "Improper Revival" will become patent law's latest one-armed bandit - at least in the right casino.

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.

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.

Beeeep Beeeep Beeeep

admin — Thu, 23 Aug 2007 15:07:00 GMT

Benitec Australia, Ltd. v. Nucleonics, Inc....(read more)

How Sweet Is It?

admin — Fri, 03 Aug 2007 18:08:00 GMT

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