Category Archives: Litigation

Patent lawsuit map may shift as Supreme Court restricts venue in patent infringement cases

A much-anticipated decision from the U.S. Supreme Court has scaled back the ability of patent plaintiffs to choose the forum in which they file suit. By limiting a practice that many defendants consider to be forum shopping by patent plaintiffs, the Court’s decision may shift the geography of patent infringement lawsuits from the East Texas heartland to the coasts.  

In TC Heartland LLC v. Kraft Foods Group Brands LLC, the Court considered the patent venue statute, 28 U.S.C. § 1400(b), which states: “Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” The Court held that a patent infringement defendant “resides” only in its state of incorporation, and that “residence” does not include states where the defendant merely conducts business.

In the case, the defendant was organized under Indiana law and headquartered in Indiana. The plaintiff filed suit in Delaware, into which the defendant shipped product but otherwise had no physical or legal presence. The defendant argued that venue in Delaware was improper under the patent venue statute.

The Court agreed with the defendant. Focusing on the meaning of the phrase “where the defendant resides,” the Court held that the term “residence” means only an entity’s state of incorporation, and the term does not include states where an entity merely does business.

The case may deal a blow to the Eastern District of Texas, which has served as the epicenter of patent patent infringement litigation in recent years. However, the Court did not negate the second half of the patent venue clause, which also supports venue “where the defendant has committed acts of infringement and has a regular and established place of business.” Texas ranks second in a list of states where the most Fortune 500 companies are headquartered. Thus, at least some new cases that previously would have gone to the Eastern District of Texas may now shift to other Texas district courts such as the Northern District of Texas (in which Dallas is located) or the Western District of Texas (in which Austin is located).

It is even more likely that new patent filings will spread out to other venues such as the District of Delaware (where more than 2/3 of the Fortune 500, and more than 1 million companies in total, are incorporated) ; the Northern District of California (home to the tech giants of Silicon Valley); or the Southern District of New York (where more Fortune 500 companies are headquartered than in any other state).

The new decision also will make it harder for patent plaintiffs to sue multiple defendants in a single case. If the accused infringers are organized in different states and have different corporate office locations, the patent holder may need to file multiple suits in multiple states.

[Image credit:  Bram Janssens]

SCOTUS: No laches in patent infringement cases; six-year limit on damages is the rule

A recent Supreme Court decision may make it easier for patent holders to assert older patents, as the decision significantly restricts the availability of laches (i.e., unreasonable delay) as a defense to a patent infringement claim.

The doctrine of laches allows a court to deny a claim if the plaintiff delayed filing the suit and the delay was unreasonable and prejudicial. The Patent Act also includes a six-year limit on the recovery of damages for patent infringement activities.

Until now, most courts interpreted these two legal doctrines as requiring a patent holder to promptly bring suit upon learning of infringing activity, and in any event no longer than six years from the date that the patent holder places the infringer on notice of the claim. The reason for this is to prevent a patent holder from lying in wait by sending a cease and desist letter but never seeking to resolve the dispute in court.

A recent Supreme Court decision has changed this long-standing interpretation. In SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC (Mar. 21, 2017), the patent holder (SCA) sent a letter accusing First Quality of infringement in 2003. In 2010 — seven years after sending the letter — SCA filed suit against First Quality. First Quality argued that SCA’s claim was time-barred under the doctrine of laches. The district court agreed and dismissed the case. The Federal Circuit affirmed, stating that laches prevents recovery of all damages, including those incurred during the 6-year period prior to filing the suit.

The Supreme Court disagreed, noting that “[l]aches is a gap-filling doctrine, and where there is a statute of limitations, there is no gap to fill.” Because Section 286 of the Patent Act imposes a six-year statute of limitations, the Court found that the Patent Act had no gap to fill:  “Laches cannot be interposed as a defense against damages where the infringement occurred within the period prescribed by §286.”

[Image copyright: Lightwise]

No more bright lines: Supreme Court overturns test for willful patent infringement

In a consolidated decision involving two new cases, the U.S. Supreme Court continued its trend of shunning bright-line rules in patent infringement cases. The cases overturned the “objective recklessness” test that the Federal Circuit established in 2007 as a threshold criterion for finding that an accused infringer willfully infringed a patent.

In Halo Electronics, Inc. v. Pulse Electronics Inc. (consolidated with Stryker Corp. v. Zimmer Corp.) the Court held that Section 284 of the Patent Act gives district courts the discretion to determine whether to award enhanced damages against those guilty of patent infringement, and if so how much. The Court expressed concern that the “objective recklessness” test made it too easy for bad-faith infringers to avoid enhanced damages by simply presenting a reasonable defense to infringement at trial — even if the defense was unsuccessful and the infringer did not act on the basis of that defense. Instead, the Court said that in the context of willfulness, the proper rule is that “culpability is generally measured against the knowledge of the actor at the time of the challenged conduct.”

However, the Court cautioned that district court discretion is not without limits:  “Awards of enhanced damages under the Patent Act … are not to be meted out in a typical infringement case, but instead are designed as a ‘punitive’ or ‘vindictive’ sanction for egregious infringement behavior” and “are generally reserved for egregious cases of culpable behavior.”

Because of this, the Court’s decision may not significantly alter the situations when damages are actually awarded for patent infringement, nor is the decision likely to have much effect on the amounts awarded. However, the decision will likely to make it easier for patent holders to bring patent infringement claims and avoid having those claims cut off in a summary judgment ruling. In addition, the decisions will ensure that truly bad-faith infringers don’t use a bright-line rule such as objective recklessness as a shield to avoid enhanced damages.

Supreme Court to address two intellectual property issues in fall 2016

The U.S. Supreme Court recently agreed to review two cases that involve important IP questions in the Court’s fall 2016 session. One case will consider whether to modify or do away with the long-standing defense of laches in patent infringement cases. The other case will address the extent to which apparel can be protected by copyright.

The doctrine of laches is a defense to patent infringement that protects accused infringers if (1) the patent holder unreasonably delayed in filing the infringement lawsuit, and (2) the accused infringer was materially prejudiced by the delay. If a patentee delays bringing suit for more than six years after the date the patentee knew or should have known of the alleged infringer’s activity, laches may be presumed. In SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, et al. (Fed. Cir. Sept. 18, 2015), the accused infringer argued that a 2014 Supreme Court decision that abolished laches as a defense in copyright cases should also apply to patent cases. The Federal Circuit disagreed and held that the defense of laches is still available in patent infringement cases. The Supreme Court will now resolve this dispute and determine whether the reasoning of its previous decision under copyright law equally applies to patents.

In the second case, the Court will address the extent to which copyright law covers apparel designs. In Varsity Brands Inc. v. Star Athletica, LLC (Sixth Cir. 2015), the U.S. Court of Appeals for the Sixth Circuit ruled that several copyright registrations on cheerleader uniform designs were valid. The designs included various stripes and chevrons, and the Sixth Circuit rejected an argument that those designs were functional and found that the designs were “’pictorial, graphic, or sculptural works’ and not uncopyrightable ‘useful articles.’” The Supreme Court will now address the question: “What is the appropriate test to determine when a feature of a useful article is protectable under § 101 of the Copyright Act?”

However, the Supreme Court also denied petitions in several other IP-related cases. Notably, so far the Court has denied at least seven petitions asking for clarity of the boundaries of patent-eligibility in view of the Court’s previous decisions in Alice Corp. v. CLS Bank Int’l and Mayo Collaborative Services v. Prometheus Laboratories, Inc..  Each of those decisions addressed the scope of Section 101 of the Patent Act, and each decision has resulted in confusion and inconsistency in lower court decisions and USPTO actions that have attempted to apply those decision.

 

U.S. Senate passes bill to establish federal trade secrets law

On April 4, 2016, the U.S. Senate unanimously passed a bill that, if enacted, will allow trade secret owners to bring suit in federal court to prevent misappropriation of their trade secrets.

The new bill, S. 1890, is known as the “Defend Trade Secrets Act of 2016,” allows trade secret owners to ask federal courts to order seizure of property necessary to prevent further dissemination of the trade secret. The court may also grant an injunction, award damages for actual loss caused by the misappropriation, and award extra damages and/or attorneys’ fees in extreme cases (such as willful or bad faith misappropriation).

The bill defines “misappropriation” as requiring “improper means,” which includes “theft, bribery, misrepresentation, breach or inducement of breach of a duty to maintain secrecy, or espionage through electronic or other means.” Improper means specifically excludes reverse engineering, independent derivation, and other lawful means.

The bill also provides for protection of the trade secret from disclosure during the federal action, and it also requires protection of the accused infringer against publicity.

The Senate bill would not preempt the many state laws that currently protect trade secrets. Instead, it would provide an additional layer of protection for trade secret owners.

The Senate bill has strong White House support. The House version of the bill has over 120 sponsors, but no timetable has been set yet for its consideration.

UPDATE:  On April 27, the House passed the Senate’s version of the bill. The bill will now move to the President for signature.  On May 11, 2016, President Obama signed the bill into law.

PTAB: Action involving license agreement does not grant standing to file petition for covered business method review

A covered business method (CBM) review is a tool that the America Invents Act (AIA) created to allow entities charged with infringement of a CBM patent to challenge the patent’s validity. A recent decision from the Patent Trial and Appeal Board (PTAB) shows that the “charged with infringement” requirement must be satisfied, or the PTAB will deny the petition.

In Ocean Tomo LLC v Patent Ratings LLC, the PTAB considered a CBM petition against a patent that was part of a license agreement to Ocean Tomo. Ocean Tomo filed a declaratory judgment action against the patent holder (Patent Ratings) on several grounds, including a count seeking declaratory judgment of non-breach of the license agreement. Ocean Tomo then filed a petition for CBM review of the patent.

The PTAB denied the petition, noting that Ocean Tomo had not been charged with infringement of the patent, and its declaratory judgment action did not include a count seeking a declaration of non-infringement. Instead, the PTAB found that “[t]he parties’ contract, tort, and related causes of action concern and arise from the fractured employment and business relationship between Petitioner and … Patent Owner, not from charges of infringement of the ’849 patent.” On that basis, the PTAB denied the petition.

 

Will the Federal Circuit or Congress boost the ITC’s ability to block the importation of infringing digital files?

Section 337 of the Tariff Act of 1930 authorizes the International Trade Commission (ITC) to halt the importation of articles that infringe patents and other intellectual property rights. Until late last year, the ITC used this authority to block imports of digital files in response to allegations of patent infringement. However, the Federal Circuit upended that tactic in November when it ruled that “articles” do not include digital data files.

The Federal Circuit’s ruling in ClearCorrect Operating LLC v. International Trade Comm’n (Fed. Cir. Nov. 10, 2015) related to a situation in which the ITC acted on a complaint filed by Align Technology, Inc., which asserted that a Pakistan-based company and its U.S. subsidiary infringed Align’s patents for methods of creating and using orthodontic aligners. The court noted that “the only purported ‘article’ found to have been imported was digital data that was transferred electronically, i.e., not digital data on a physical medium such as a compact disk or thumb drive.”

The Tariff Act does not define the term “article,” so the court looked at various dictionary definitions, as well as other sections of the Tariff Act, and concluded that intangibles such as digital data are not “articles” that are within the ITC’s authority to block. The court also noted that Congress has debated various updates to the relevant sections of the Tariff Act in recent years, but it has not implemented any changes that would update the Act to expressly include digital data within the ITC’s authority.

The ITC has requested an extension of time (through January 27) to request an en banc rehearing of the decision. It is widely expected that the ITC will file the rehearing petition.

The ClearCorrect decision followed another Federal decision (Suprema v. International Trade Comm’n) that expanded the ITC’s authority to block importation of devices (e.g., fingerprint scanners) that are not infringing upon entry into the U.S., but which do infringe after certain software is loaded on the devices. Some may view the Suprema and ClearCorrect decisions to be at odds with each other. If the Federal Circuit revises the ClearCorrect decision in a rehearing, the result could create a significant roadblock for importers of products, software and data sets that infringe U.S. intellectual property rights.