APaTS : Willful infringement

Night of the Living Dead Letter

admin — Thu, 08 Jan 2009 19:13:00 GMT

Beware the Curse of the Zombie Opinion-of-Counsel Letter! In re Seagate -- and the changes it made to the standard for willful infringement - seemed to kill off such creatures. Now, the Federal Circuit's decision in Broadcom Corp. v. Qualcomm, Inc., brings them back to life. Swirling out of the mists of the law of induced infringement, the Opinion-of-Counsel Letter has risen from its crypt, bringing new terrors to alleged infringers everywhere . . . .

In Broadcom, the jury returned a verdict that Qualcomm had willfully infringed and induced the infringement of Broadcom's patents for 3G mobile phone technologies. Qualcomm had elected to maintain its attorney-client privilege rather than introduce the opinion-of-counsel letter prepared by its attorneys in response to Broadcom's willful infringement claim. After the trial court set aside the jury's willfulness determination in the wake of Seagate, Qualcomm chose to accept the jury's verdict on liability and damages rather than have a new trial on all issues, including the willfulness question. After the court's entry of an injunction, Qualcomm appealed.

On appeal, Qualcomm argued that Seagate required a change in the rules for determining infringement claims based on inducement. Before Seagate infringers had an "affirmative duty of due care" to avoid willful infringement, and opinion-of-counsel letters often served as evidence of the exercise of that duty. When Seagate eliminated that duty, it looked like the need for opinion-of-counsel evidence had also been killed off. Qualcomm claimed the trial court had erred in its instructions regarding conclusions the jury could draw from Qualcomm's failure to offer its opinion-of-counsel letter. Qualcomm argued that it could not be liable for inducement if it was not liable for willfulness since the specific intent standard for inducement is greater than the recklessness associated with willful infringement.

The Federal Circuit rejected these arguments. The Court found the inducement standards unchanged since its opinion in DSU Medical. Under DSU, proof of induced infringement, under 35 U.S.C. § 271(b), requires evidence that the accused infringer "intended to cause the acts that constitute the direct infringement," and that the accused "kn[ew] or should have known [that] its action would cause the direct infringement." The Broadcom panel held that inducement may be found even when willfulness is absent.

And what specter rose out of its Seagate grave to satisfy those evidentiary requirements? The Opinion-of-Counsel Letter - or, more specifically, the failure to obtain (or offer) such evidence when faced with an induced infringement claim. The court said it "would be manifestly unfair to allow opinion-of-counsel evidence to serve an exculpatory function . . . and yet not permit patentees to identify failures to procure such advice as circumstantial evidence of intent to infringe." In the end, the Federal Circuit invalidated one of the patents, but left the district court's judgment and injunction standing.

From the perspective of an alleged infringer, Broadcom offers plenty to keep the accused infringer up at night. Spooky: A close reading of Broadcom might lead to the conclusion that the "specific intent" requirement of inducement is not so specific. Spookier: An alleged infringer in an induced infringement action who can't conjure an Opinion-of-Counsel Letter may not stand a ghost of a chance. Spookiest: No one can say what previously discounted claim or defense might next rise up to join the Opinion-of-Counsel Letter among the ranks of the "undead."

On the Block

admin — Wed, 06 Aug 2008 18:44:00 GMT

Chopping block, that is, since the patent holder in Muniauction, Inc. v. Thomson Corp. had its verdict for willful patent infringement overturned and its $77 million damage award eliminated. Changes in controlling case law in the time between verdict and appeal contributed to the reversal; but bad expert testimony and a skimpy record on appeal also helped turn the district court's verdict into nothing more than an inflated appraisal.

Patent holder Muniauction held an electronic methods patent that utilized a conventional web browser to allow municipalities to auction bonds to underwriters over the Internet. Because of the web browser, bidders could monitor the auction and the status of the current best bid. Alleged infringer Thomson held the patent on the prior art which operated in much the same manner but required the use of proprietary software in order for bidders to participate in the bond auctions.

Following the verdict in Muniauction's favor, Thomson appealed. While the appeal was still pending, the Supreme Court issued the KSR decision regarding the test for obviousness under § 103. The Federal Circuit also issued opinions which changed the standards for willful infringement (Seagate) and for evaluation of infringement in multi-party method patents (BMC Resources).

The district court's verdict simply couldn't survive review under these new standards. Because obviousness is a question of law, the Federal Circuit gave no deference to the jury verdict or the district court's conclusion. Muniauctions's expert had admitted that key patent claims were essentially identical to the prior art except for the use of the web browser. Relying on KSR, the court held as a matter of law that the web browser improvement was nothing "more than the predictable use of prior art elements according to their established function." Worse, additional damaging testimony from patent holder's own expert negated important conflicting evidence from the PTO regarding validity. Attempts to show secondary indicia of non-obviousness were also dismissed because the court found no sufficient connection to the claims under review.

Further, though the Federal Circuit acknowledged that certain asserted claims were not obvious even under KSR, it found those claims not to be infringed. BMC Resources demands the presence of a single controlling "master mind" in order for there to be infringement in process patents requiring in-put from multiple parties. Reviewing the record, the Federal Circuit determined that alleged infringer Thomson did not exert that kind of control in the process under review and could not, therefore, be found liable for direct infringement.

The case serves as a stark reminder that the law does matter and litigants need to build their case around the key legal principles at issue. This includes recognizing unsettled areas of the law and anticipating potential changes in the law adverse to the litigant's position. With regard to obviousness, the requirement of a nexus between the invention and the secondary indicia of non-obviousness is nothing new, yet its importance in the obviousness calculus has been heightened in the wake of KSR. Nevertheless, the plaintiff apparently relied upon a fairly sparse record regarding these factors, focusing upon features and functionality of the commercial embodiment that were not directly implicated by the claims. Equally important, the patent holder did not help its case by conceding how close the prior art was to the claimed invention; by not precisely tying further expert testimony regarding the scope of prior art to the actual claim language, the plaintiff and its expert gave the defendant an opening that the Federal Circuit ultimately seized upon.

Our advice? Heed the teachings of Muniauction or risk Federal Circuit review ending with the pronouncement that a prior district court victory is now "going, going GONE!"

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.

Limbo, Limbo

admin — Thu, 30 Aug 2007 20:30:00 GMT

In re Seagate Technology...(read more)