Staying Current in The World of Patent Litigation: A Year (And More) In Review

1. Staying Current in The World of Patent Litigation: A Year (And More) In Review ABA IPL Spring Conference Friday, April 4, 2014 (10:15-11:45 am)

2. Moderator• Jonathan Muenkel (IP Attorney – Currently In Transition)Panelists • Hon. Judge Paul Michel (Ret.) (Chief Judge – U.S. Court of Appeals for Federal Circuit) • Greg Castanias (Partner - Jones Day) • Matthew Blackburn (Partner - Locke Lord) • Ha Kung Wong (Partner - Fitzpatrick Cella Harper & Scinto)

3. Agenda • Patent Eligibility (35 U.S.C. §101) • Infringement (35 U.S.C. §271) • Remedies • §285 Exceptional Case, Injunctions, Damages • Claim Construction • Administrative Agency Decisions (Post-AIA) • In re Baxter Int’l, PTAB • Other • Appellate Jurisdiction, §112 Indefiniteness

4. Patent Eligibility (35 U.S.C. § 101)

5. Eligibility • 1952 Act: • Created a separate section 101 detailing four categories of inventions (“process, machine, manufacture, [and] composition of matter,” and “improvement[s] thereof”), and provided that an inventor “may obtain a patent therefor, subject to the conditions and requirements of this title.” • Created a new section 103 (“nonobviousness”) to codify the “invention” requirement of prior judicial decisions.

6. Judicial (“implicit”) exceptions to §101 • “Phenomena of nature, though just discovered, mental processes, and abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work.” Gottschalk v. Benson, 409 U.S. 63, 67 (1972), citing Funk Bros. Seed Co. v. KaloInoculant Co., 333 U. S. 127, 130 (1948) • Rubber-Tip Pencil Co. v. Howard, 20 Wall. 498, 507 (1874) (“An idea of itself is not patentable.”) • Le Roy v. Tatham, 14 How. 156, 175 (1853)(“A principle, in the abstract, is a fundamental truth; an original cause; a motive; these cannot be patented, as no one can claim in either of them an exclusive right.”)

7. Supreme Court: §101 Has Muscle • Bilski v. Kappos, 561 U.S. __ (2010)—reaffirms the implicit exceptions to §101 and holds business method claim ineligible because “abstract” • Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. ___ (2012)—applies “law of nature” exception and holds diagnostic-method claim ineligible for lack of an “inventive concept” beyond the law of nature and several “well-understood, routine, and conventional” steps

8. Myriad Genetics • Specific, defined DNA molecule isolated from the human genome not eligible: “[S]eparating a gene from its surrounding genetic material is not an act of invention.” • However, cDNA (DNA molecule with introns removed) is eligible for patenting: “creation of a cDNA sequence from mRNA results in an exons-only molecule that is not naturally occurring” • Both involve acts of separation and removal; only one is “an act of invention”

9. CLS Bank • Fractured en banc Federal Circuit with no opinion speaking for the Court; 7 opinions in 135 pages • Opinion 1: Per curiamholding of ineligibility; no reasoning • Opinion 2: Lourie, Dyk, Prost, Reyna, Wallach • Opinion 3: Rader, Linn, Moore, O’Malley • Opinion 4: Moore, Rader, Linn, O’Malley • Opinion 5: Newman • Opinion 6: Linn & O’Malley • Opinion 7: Rader (“Additional reflections”)

10. CLS Bank: Lourie opinion [2] • Joined by Judges Dyk, Prost, Reyna, Wallach: • [1] Is claim within statutory class? • [2] Does claim pose any risk of preempting an abstract idea? If so— • [a] identify the fundamental concept • [b] determine whether other limitations “tie down” the claim so that it does not cover the entire abstract idea • Conclusion: Adding computer to abstract idea does not show nontrivial “human contribution”

11. CLS Bank: Rader opinion [3] • Joined (in part) by Judges Linn, Moore, O’Malley: • System claims eligible • Relevant inquiry: Does claim include “meaningful limitations restricting it to an application” of an abstract idea, as opposed to the idea itself?

12. CLS Bank: Moore opinion [4] • Joined by Chief Judge Rader and Judges Linn and O’Malley: • “I am concerned that the current interpretation of § 101, and in particular the abstract idea exception, is causing a free fall in the patent system. * * * * Holding that all of these claims are directed to no more than an abstract idea gives staggering breadth to what is meant to be a narrow judicial exception. And let’s be clear: if all of these claims, including the system claims, are not patent-eligible, this case is the death of hundreds of thousands of patents, including all business method, financial system, and software patents as well as many computer implemented and telecommunications patents.”

13. CLS Bank: Newman opinion [5] • For herself alone: • “The ascendance of section 101 as an independent source of litigation, separate from the merits of patentability, is a new uncertainty for inventors. The court, now rehearing this case en banc, hoped to ameliorate this uncertainty by providing objective standards for section 101 patent-eligibility. Instead we have propounded at least three incompatible standards, devoid of consensus, serving simply to add to the unreliability and cost of the system of patents as an incentive for innovation. With today's judicial deadlock, the only assurance is that any successful innovation is likely to be challenged in opportunistic litigation, whose result will depend on the random selection of the panel.”

14. CLS Bank: Linn opinion [6] • Joined by Judge O’Malley: • “The method, media, and system claims we review today must rise and fall together; either they are all patent eligible or they are not. This is so, not because, as Judge Lourie’s opinion concludes, they are all tainted by reference to the same abstract concept, but because the record we are presented makes clear that they are grounded by the same meaningful limitations that render them patent eligible.”

15. CLS Bank: Rader opinion [7] • “Additional reflections”: • “The statute offers a patent to both inventions and discoveries, including simply an improvement on a known process or product. * * * * [T]he Supreme Court long ago held that Section 101 is not a ‘condition of patentability.’ * * * * Finally, the statute does not list Section 101 among invalidity defenses to infringement.” • “And what about ‘exceptions’ like natural laws and natural phenomena? Of course, these are universal constants created, if at all, only by God, Vishnu, or Allah. But, for perspective, even gravity is not a natural law in Einsteinian theory, but a symptom of a curved universe. * * * * Moreover, to inject the patentability test of "inventiveness" into the separate statutory concept of subject matter eligibility makes this doctrine again ‘the plaything of the judges who, as they became initiated into its mysteries, delighted to devise and expound their own ideas of what it meant; some very lovely prose resulting.’ [quoting Judge Rich]”

16. Other Recent Section 101 Decisions • Ultramercial v. Hulu (CAFC 2013)–GVR after Mayo; reverses district court holding that claims not drawn to a “process” (Rader, C.J. & O’Malley, J.; Lourie, J., concurring in result) • Accenture v. Guidewire (CAFC 2013)—business-method claim ineligible under §101 (Lourie & Reyna, JJ.; Rader, C.J., dissenting)

17. A Once Viable Solution, No Longer • A simpler, more elegant solution was proposed by the Solicitor General in Mayo: Use §101 as a categorical filter, and use the other sections (§102, §103, §112) to test for the presence of a “new” “invention” • But Mayo “decline[d] the Government's invitation to substitute §§102, 103, and 112 inquiries for the better established inquiry under §101.”

18. “The Better Established Inquiry” Yields A Regime Of Ex Post Judgments • “Natural phenomena” and “products of nature” (how “unnatural” must it be to be an invention?) • “Abstract ideas” (how “concrete” must it be to be an invention?) • “Preemption” (how much “preemption” is acceptable before ineligibility will result?) • No reliable ex ante answers until a constellation of definitive decisions demonstrates a pattern • Will CLS Bank (argued March 31) provide some answers?

19. Infringement(35 U.S.C. § 271)

20. Infringement • Direct Infringement § 271(a) • Divided Infringement • Induced Infringement §271(b) Actor Actor Actor A A B Actor A Actor B Smith & Nephew v. Arthrex Akamai v. Limelight Commil v. Cisco

21. Limelight v. Akamai • Divided Infringement Asserted Claim 19 of U.S. Patent No. 6,108,703 covers a “content delivery service” that performs four steps: • replicating embedded objects across a network of content services on the content delivery network (CDN); • “tagging the embedded objects of the page so that requests for the page objects resolve to the [CDN provider’s] domain instead of the content provider domain;” • serving the base page from the content provider domain; and • serving at least one embedded object from the CDNprovider’s domain.    Actor A  customer Actor B

22. Limelight v. Akamai • Divided Infringement • “[A]ll the steps of a claimed method must be performed … to find induced infringement, but … it is not necessary to prove that all the steps were committed by a single entity.” • HELD—Limelight liable for inducing infringement if (1)Limelight knew of Akamai patent; (2)Limelight performed all but one of the steps of the method; (3)Limelight induced customers to perform the final method step; and (4)customers performed that method step. Actor A per curiam en banc (6/11) Actor B

23. Limelight v. Akamai • Divided Infringement Actor A Dissents Agree • No inducement without direct infringement. Linn Dissent (4) Newman Dissent (1) Actor B • Decide direct infringement with principles of vicarious liability • “control or direction” test • Direct infringement where multiple parties perform process “in collaboration or interaction”

24. Limelight v. Akamai • Divided Infringement Question Presented Whether the Federal Circuit erred in holding that a defendant may be held liable for inducing patent infringement under 35 U.S.C. §271(b) even though no one has committed direct infringement under §271(a). Cert. Granted Actor A Actor B

25. Limelight v. Akamai • Divided Infringement Limelight—S.Ct. should reverse Federal Circuit and hold no indirect liability under § 271(b) because: • Liability under § 271(b) requires proof that the defendant has induced actionable direct infringement. See, e.g., Aro Mfg. Co. v. Convertible Top Replacement Co., 365 U.S. 366, 341 (1961); Global-Tech Appliances, Inc. v. SEB S.A., 131 S.Ct. 2060, 2065 (2011); Deepsouth Pacing Co. v. Laitram Corp., 406 U.S. 518, 526 (1972) • Neither Limelight nor its customers directly infringe Akamai’s patent • Criminal law and tort principles cannot expand the reach of § 271(b) when the statute’s terms are limited. Courts are bound by language that Congress adopted Actor A Actor B 

26. Smith & Nephew v. Arthrex • Induced Infringement §271(b) Global-Tech Appliances v. SEB S.A., 563 U.S. __, 131 S.Ct. 2060, 2068 (2011) Held: While inducement of infringement requires knowledge that the induced conduct itself infringes, that knowledge element can be met by showing “willful blindness” Actor Actor A B

27. Smith & Nephew v. Arthrex • Induced Infringement §271(b) Majority—Substantial evidence supports Global-Tech “willful blindness” finding because: • Arthrex knew of patent (president & owner; chief engineer & group director) • Instructions for use paralleled patented method steps and were drafted by group director • Arthrex did not compare accused products with patent claims Actor Actor A B Non-precedential

28. Smith & Nephew v. Arthrex • Induced Infringement §271(b) Clevenger dissent—No Global-Tech “willful blindness” because: • Rebuttal testimony from Arthrex product designers establishes subjective belief of non-infringement Actor Actor A B Non-precedential

29. Commil v. Cisco • Induced Infringement §271(b) … If you find that a third party has directly infringed [one of the asserted claims] and that Cisco knew or should have known that its actions would induce direct infringement, you may find that Cisco induced another to infringe Commil’spatent if it provided instructions and directions to perform the infringing act …. Actor April 2011 Inducement Jury Instruction (pre-Global-Tech) Actor A B

30. Commil v. Cisco • Induced Infringement §271(b) • Panel Majority (Prost & O’Malley)— • Jury instruction was erroneous because it permitted inducement finding based on mere negligence (should have known) where knowledge is required • Good faith belief of patent invalidity may negate intent required to support an inducement charge Actor Actor A B • Dissent (Newman)— • Global-Tech only requires “knowledge that the induced acts constitute patent infringement” • Belief of patent validity is not a requirement for inducement

31. Declaratory Judgments

32. Medtronic v. Mirowski Family Ventures MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007) Held: Patent licensee is not required to breach license (and risk infringement litigation) before seeking a declaratory judgment that a patent is invalid, unenforceable, or that licensee’s products do not infringe

33. Medtronic v. Mirowski Family Ventures Medtronic Inc. v. Boston Scientific Corp., 695 F.3d 1266 (Fed. Cir. 2012) • MFV (owner) licensed patents to Medtronic • License permitted declaratory judgment actions • Medtronic sought declaratory judgment of non-infringement without terminating license HELD: when continued existence of a license forecloses infringement counterclaim by patentee, licensee seeking declaratory judgment of non-infringement bears burden of proof

34. Medtronic v. Mirowski Family Ventures • Unanimous S. Ct. opinion overturns Federal Circuit decision • Patent owner bears burden of proving infringement because: • Patentee ordinary bears burden of proving infringement • Shifting burden of persuasion based on form of action could create uncertainty • Burden shifting inconsistent with purpose of Declaratory Judgment Act

35. Remedies

36. Exceptional Case Finding (35 U.S.C. §285) • The court “in exceptional cases may award reasonableattorney fees to the prevailing party” • What is exceptional? • Willful infringement; • Inequitable conduct; or • Subjective bad faith + Objectively baseless Brooks Furniture Mfg., Inc. v. Dutailier Intl., Inc., 393 F.3d 1378 (Fed. Cir. 2005)

37. Exceptional Case Finding (35 U.S.C. §285) “Section 285 of the Patent Act, as well as Rule 11 of the Federal Rules of Civil Procedure, give judges the authority they need to shift the cost burden of litigation abuse from the defendant to the troll. But remarkably, judges don’t do so very often: by our count, fees were shifted under Section 285 in only 20 out of nearly 3,000 patent cases filed in 2011.” By RANDALL R. RADER, COLLEEN V. CHIEN and DAVID HRICIK Published: June 4, 2013

38. Exceptional Case Finding (35 U.S.C. §285) Octane Fitness v. Icon Health & Fitness Question Presented Whether the Federal Circuit’s promulgation of a rigid and exclusive two-part test for determining whether a case is “exceptional” under 35 U.S.C. § 285 improperly appropriates a district court’s discretionary authority to award attorney fees to prevailing accused infringers in contravention of statutory intent and this Court’s precedent, thereby raising the standard for accused infringers (but not patentees) to recoup fees and encouraging patent plaintiffs to bring spurious patent cases to cause competitive harm or coerce unwarranted settlements from defendants. Cert. Granted

39. Exceptional Case Finding (35 U.S.C. §285) Highmark Inc. v. Allcare Health Mgmt. Sys., Inc. Question Presented Whether a district court’s exceptional-case finding under 35 U.S.C. § 285 (which permits the court to award attorney’s fees in exceptional cases), based on its judgment that a suit is objectively baseless, is entitled to deference. Cert. Granted

40. Exceptional Case Finding (35 U.S.C. §285) Octane Fitness v. Icon Health & Fitness Highmark Inc. v. Allcare Health Mgmt. Sys., Inc. Octane—”Objectively baseless” substantive standard is too high Highmark—This is a fact question (reasonableness of conduct), and subject to unitary abuse-of-discretion review Icon—Brooks Furniture standard is correct. Absent other misconduct, the case must be at least “objectively baseless” Allcare—Objective reasonableness is a legal issue, and subject to de novo review

41. Exceptional Case Finding (35 U.S.C. §285) Octane Fitness v. Icon Health & Fitness Highmark Inc. v. Allcare Health Mgmt. Sys., Inc.  Octane—”Objectively baseless” substantive standard is too high Highmark—This is a fact question (reasonableness of conduct), and subject to unitary abuse-of-discretion review  Icon—Brooks Furniture standard is correct. Absent other misconduct, the case must be at least “objectively baseless” Allcare—Objective reasonableness is a legal issue, and subject to de novo review

42. Injunctions

43. Apple, Inc. v. Samsung eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) Held: Patent owner must satisfy a four-factor test before court may grant permanent injunction, namely: • it has suffered an irreparable injury; • remedies available at law, such as monetary damages, are inadequate to compensate for that injury; • considering the balance of hardships between patent owner and infringer, a remedy in equity is warranted; and • the public interest would not be disserved by a permanent injunction.

44. Apple, Inc. v. Samsung Pre-eBay injunction grant rate [n=127] Sources: www.docketnavigator.com; Kristy Downing & Gary Frischling, Injunctive Relief After eBay v. MercExchange, Presentation to the AIPLA 2007 Annual Patent Law Committee 12 (Oct. 19, 2007)

45. Apple, Inc. v. Samsung Apple, Inc. v. Samsung (“Apple I”), 678 F.3d 1314, 1324 (Fed. Cir. 2012)—Affirming denial of preliminary injunction, and approving use of causal nexus requirement: “To show irreparable harm, it is necessary to show that the infringement caused harm in the first place. Sales lost to an infringing product cannot irreparably harm a patentee if consumers buy that product for reasons other than the patented feature. If the patented feature does not drive the demand for the product, sales would be lost even if the offending feature were absent from the accused product. Thus, a likelihood of irreparable harm cannot be shown if sales would be lost regardless of the infringing conduct.”

46. Apple, Inc. v. Samsung Apple, Inc. v. Samsung (“Apple II”), 909 F.Supp.2d 1147 (N.D. Cal. 2012)—Denying permanent injunction to Apple because Apple failed to prove causal nexus between infringement and alleged harm • Documents & testimony showing ease of use important in phone choice; • Deliberate copying by Samsung; and • Hauser conjoint survey

47. Apple, Inc. v. Samsung Apple, Inc. v. Samsung (“Apple III”), 735 F.3d 1352 (Fed. Cir. 2013)—Affirming denial of permanent injunction to Apple as to design patents but vacating as to utility patents. • Casual nexus rulings from Apple I “appl[y] equally” to permanent injunction analysis. Id. at 1361. • Patent owner not required to show patented feature is “sole reason” for consumer purchases, but must show “some connection.” Id. at 1364. • D. Ct. erred in rejecting Dr. Hauser’s survey evidence, which would be relevant if it shows “a feature significantly increases the price of a product.” Id. at 1368.

48. Apple, Inc. v. Samsung Apple, Inc. v. Samsung (“Apple IV”), No. 11-cv-01846-LHK, Mar. 6, 2014 Order (N.D. Cal.)—Denying permanent injunction to Apple as to utility patents Hauser conjoint survey deficient because there is no way to directly compare consumer willingness to pay with overall value of device: $422 $199 Hauser price premium for 6 features Smartphone base price

49. Apple, Inc. v. Samsung Apple, Inc. v. Samsung (“Apple IV”), No. 11-cv-01846-LHK, Mar. 6, 2014 Order (N.D. Cal.)—Denying permanent injunction to Apple as to utility patents Hauser conjoint survey also deficient because: • failure to test numerous other features documents showed were important to consumers; • failure to adequately account for non-infringing alternatives; and • undue emphasis on the patent features in conducting survey

50. Claim Construction