Current Topics in U.S. Patent Law 2006

1. Current Topics in U.S. Patent Law 2006

2. Is the U.S. Supreme Court rewriting Patent Law 2. AT&T v. Microsoft and 35 U.S.C. Section 271(f)

3. 1. THE U.S. SUPREME COURT IS MOVING

4. Is the Supreme Court Changing United States Patent Rights? Are patent rights • Only “To promote the progress of science and useful arts” • Not to promote the accumulation of wealth? • Too many patents? • Too many bad patents? • Patent Trolls?

5. Illinois Tool Works v. Independent Ink, 126 S.Ct. 1281 (March 1, 2006)

6. Illinois Tool Works v. Independent Ink • Minor case • But shows interest • Overturned prior precedent that market power arises from the mere ownership of patent rights • plaintiffs alleging a patent tying violation must now prove that defendant has market power in the patented tying product

7. Merck KGaA v. Integra Lifesciences I, Ltd., 545 U.S. 193 (June 13, 2005)

8. Merck KGaA v. Integra Lifesciences • U.S. law, unlike Europe, has no “experimental exception” • Statutory exception, §271(e)(1) for drug development • Court expanded freedom to operate under §271(e)(1) • Scientific testing is a process of "trial and error" • A pro-development, but anti-property right policy

9. eBay Inc. v. MercExchange, L.L.C., 126 S.Ct. 1837 (May 15, 2006)

10. eBay v. MercExchange con’t CASE HISTORY: Trial (District) Court determined that eBay infringed MercExchange patent, and awarded damages of $25.5 million to MercExchange, But Court denied injunctive relief.

11. eBay v. MercExchange con’t CASE HISTORY: The Federal Circuit Court of Appeals reversed the District Court’s denial of a permanent injunction because: • The general rule was that a permanent injunction would issue once infringement and validity had been adjudged • the right to exclude under a patent “is but the essence of the concept of property.”   • Only in rare instances was injunctive relief denied • E.g. to protect public interest • “general concern regarding business-method patents … is not the type of important public need that justifies the unusual step of denying injunctive relief.”

12. eBay v. MercExchange con’t LEGAL CONTEXT: A Patentee’s right to exclude other is established by the United States Constitution: “The Congress shall have power . . . To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”  

13. eBay v. MercExchange con’t LEGAL CONTEXT: However, patent statutes vest the district courts with discretion: 35 USC § 283: “The several courts having jurisdiction of cases under this title may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable.”

14. eBay v. MercExchange con’t The Supreme Court Unanimous Opinion: District Court’s may not depart from the traditional four-factor test required to issue equitable remedies such as injunctions.

15. eBay v. MercExchange con’t The Supreme Court Unanimous Opinion: All patentees seeking injunction must demonstrate: • irreparable injury to patentee • money damages inadequate to compensate patentee • balance of hardships favors patentee • public interest favors patentee

16. eBay v. MercExchange con’t The Supreme Court Unanimous Opinion: Both Appellate and District Courts misapplied the four-factors test for injunctive relief: • The Federal Circuit’s general/categorical rule in favor of patent injunctions absent special circumstances was too broad. • The District court’s categorical denial of injunction relief to patentees not in the market was too narrow and failed to address the equities of non-market participants such as “university researchers” or “self-made inventors”.

17. eBay v. MercExchange con’t General Comments Decision is viewed as surprising and problematic for various reasons: • Overturned generally-accepted view • Sparse analysis • Left more questions than it resolved • Left law to be developed by trial and error in lower courts • Mixed signals from the Justices

18. eBay v. MercExchange con’t General Commentscon’t. The concurring opinions appear to diverge on how the courts should apply prior precedent in patent injunction cases to the consideration of patent injunctions going forward

19. eBay v. MercExchange con’t • Roberts ConcurrenceJoined by Scalia and Ginsburg. • Since the 19th century, courts have granted injunctive relief in the vast majority of cases. • Courts should not apply four factor test “on an entirely clean slate.” •  “When it comes to discerning and applying those standards, in this area as others, ‘a page of history is worth a volume of logic.’” 

20. eBay v. MercExchange con’t • Kennedy ConcurrenceJoined by Stevens, Souter and Breyer • “The letter of the historical practice… is most helpful and instructive when the circumstances of a case bear substantial parallels to litigation the courts have confronted before.” • “The nature of the patentbeing enforced and the economic function of the patent holder present considerations quite unlike earlier cases.” • “An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees.” • “When the patented invention is but a small    component of the product… and the threat of an injunction is employed simply for undue leverage  in negotiations, legal damages may well be sufficient… and an injunction may not serve the public interest.”

21. What Happens Next eBay v. MercExchange con’t • In cases that do not settle, additional litigation • Legal framework to apply equity will need to be developed, first at District Courts, then shaped by Federal Circuit. • Forum shopping for injunction seekers if Federal Circuit is slow to correct differing approaches by District Courts • Potentially reduce fear of patent trolls, but • Unlikely to reduce actual litigation, and could potentially increase

22. Effect on European Companies eBay v. MercExchange con’t May reduce value of US patents for any European company without a licensee or operations in, and who does not import products into, the United States.

23. Effect on European Companies eBay v. MercExchange con’t Holders of U.S. patents outside the U.S. should consider: • Placing patents in the name of a subsidiary or related entity active in U.S. market relevant to the patent. • Granting an exclusive license to such entity • Assigning patent to an unrelated U.S. entity active in market, with grant back of an exclusive license.

24. Laboratory Corp. v. Metabolite Labs Review Summarily Vacated June 22, 2006

25. Lab Corp. v. Metabolite Labs • Claim: “A method for detecting a deficiency of cobalamin or folate in warm-blooded animals comprising the steps of: assaying a body fluid for an elevated level of total homocysteine; and correlating an elevated level of total homocysteine in said body fluid with a deficiency of cobalamin or folate.” • Decision below, 370 F.3d 1354 (Fed. Cir. 2004), Lab Corp. was found to be liable for inducing infringement of the method claims by advertising its tests and providing doctors with the test results • Supreme Court agreed to review

26. Supreme Court Question • Requested the government’s view to the question: “Respondent's patent claims a method for detecting a form of vitamin B deficiency, which focuses upon a correlation in the human body between elevated levels of certain amino acids and deficient levels of vitamin B. The method consists of the following: First, measure the level of the relevant amino acids using any device, whether the device is, or is not, patented; second, notice whether the amino acid level is elevated and, if so, conclude that a vitamin B deficiency exists. Is the patent invalid because one cannot patent laws of nature, natural phenomena, and abstract ideas?”

27. Then . . . • 17 amicus briefs • Oral arguments on March 21, 2006 • On June 22, 2006, the Supreme Court issued its decision • Petition for review was improperly granted • Decision below stands

28. Lesson from Court’s Request and Subsequent Dismissal • Court accepted review because concern that Federal Circuit over-extended patentable matter • The facts apparently were not satisfactory for decision • Court will take another case • Scope of patentable subject matter under U.S. law remains uncertain

29. KSR Intern. Co. v. Teleflex Inc Petition for Review granted 26 June 2006

30. Issue Presented by KSR v. Teleflex • May an invention be held to be obvious if there is no “teaching, suggestion, or motivation that would have led a person of ordinary skill in the art to combine the relevant prior art teachings in the manner claimed.”

31. KSR v. Teleflex • Large number of amicus briefs being filed • Many consider that Supreme Court accepted case to rewrite or restate obviousness (“lack of inventive step”) standard • Obviousness is currently very weak defense, due in part to the “motivation” requirement

32. MedImmune v. Genentech Oral Argument: 4 October 2006

33. Question before the Supreme Court “[Must] a patent licensee … refuse to pay royalties and commit material breach of the license agreement before suing to declare the patent invalid, unenforceable or not infringed?”

34. U.S. Government Position [The Court’s] limitation on the availability of declaratory relief cannot be squared with this Court’s cases or with the congressional purposes underlying the Act. . . . A declaratory judgment plaintiff need not run the risks entailed in actually violating the law in order to make out an “actual controversy.” . . . Yet the [Court insists that] a patent licensee . . . commit a material breach of its license agreement in order to create an “actual controversy.” That result is contrary to the congressional purposes behind the Act, which was adopted to free parties of the requirement that they act at their peril on their own interpretation of their rights before being able to obtain a judicial construction of those rights.

35. Ramifications of Potential Decision • Court may hold that patent licensee may maintain license while suing to declare the patent invalid or not infringed • Licensee is in situation of “tails I win, heads you lose • Question whether “no-challenge” clauses will be enforceable • Consequences so negative that Congress might have to ultimately legislate, but years of problems ahead

36. Effect on European Companies • European licensors run risk of declaratory judgment lawsuits on the “home turf” of U.S. licensee • Particular danger where some judges tend to favor local companies against European interests • European licensors may be particularly hurt by dual effect of possible loss of injunction right while facing suits to challenge licensed patents

37. General Conclusions • Large scale dissatisfaction with current state of U.S. Patent Law • Series of legislations introduced to improve • Substantive • First-to-file, not first-to-invent • Procedure • Post-filing opposition • Litigation • Shifting legal fees to loser • U.S. Supreme Court has heard complaints and is legislating corrections • “Stay tuned”

38. AT&T v. Microsoft (cert pending)and 35 U.S.C. § 271(f)

39. How did § 271(f) become law? • Shrimp and need to “devein” • Laitram Corp. invents machine and patents • Competitor Deepsouth Packing patent counsel finds a loophole • Manufacture machines in U.S. in three parts; ship for assembly and sale • In Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518 (1972) Court says no infringement • Congress tries to close the loophole by 35 U.S.C. § 271(f): • (f)(1) Whoever… supplies…from the United States…components of a patented invention…shall be liable as an infringer.

40. Fall and Rise of § 271(f) • statute languishes, because U.S. manufacturing is being off-shored • Software now makes § 271(f) critical

41. What can be exported under §271(f)? • 271(f) provides: • (1) Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer. • (2) [exporting any “especially made” component knowing that it will be combined]

42. What can be exported under §271(f)? • Standard Havens Products, Inc. v. Gencor Industries, Inc., 953 F.3d 1360 (Fed. Cir. 1991) • § 271(f) does not apply to process claims • Patent claimed a method of producing asphalt. Defendant sold a plant to a Canadian customer who assembled it and made asphalt outside of the United States. None of the asphalt was shipped back into the United States. • “we do not find the provisions of 35 U.S.C.§ 271(f) (1988) implicated”—even though the plant was specifically designed for the patented process.

43. What can be exported under § 271(f)? • NTP v. RIM, 418 F.3d 1282 (Fed. Cir. 2005) • Export of information not infringing • “[I]t is difficult to conceive of how one might supply or cause to be supplied … the steps of a patented method in the sense contemplated by the phrase ‘components of a patented invention’ in § 271(f).” 418 F.3d at 1322. • “Because the “transmission of information,” like the “production of information,” does not entail the manufacturing of a physical product, section 271(g) does not apply to the asserted method claims in this case any more than it did in Bayer.” • What is information? How different is it from “computer program product”?

44. Bayer--Importation under § 271(g)? 35 U.S.C. § 271(g) provides: Whoever without authority imports into the United States … a product which is made by a process patented in the United States shall be liable as an infringer…. Aproduct which is made by a patented process will, for purposes of this title, not be considered to be so made after — (1) it is materially changed by subsequent processes; or (2) it becomes a trivial and nonessential component of another product.

45. What can be imported under § 271(g)? • Bayer v. Housey Pharms., 340 F.3d 1367 (Fed. Cir. 2003) • Patent to a process of screening for a drug • Nothing in the patent about the drug itself • Bayer did the screening in Europe and imported the data • Section 271(g) limited to articles “manufactured” abroad; data not “product made” • Relied heavily on dictionaries in interpreting statutory languages • “a person possessing the allegedly infringing information could…possibly infringe by merely entering the country.” • Again, what is information? How different is it from “computer program product”?

46. What is Affected Under §271(f)? • Eolas v. MSFT, 399 F.3d 1325 (Fed. Cir. 2005) • Claims to Web browsing method, and “computer program product.” • What makes the product claims (computer readable medium) patentable? • Exported “golden master disk,” itself not a physical part of infringing product. • CAFC held: “computer readable program code” is a component of the claimed invention and that an exact duplicate of the software code on the golden master disks is incorporated as an operating element in an infringing device • How about the fact that only one copy of the “product” was exported? • cert. denied

47. What can be exported under § 271(f)? • Union Carbide Chemicals v. Shell Oil • Exported unpatented catalysts for use in process patented in the U.S., are found to be infringing and should be included in damage calculations • Citing Eolas, and distinguished NTP v. RIM (where infringement was unquestionable under § 271(a)) • Remember Standard Havens? • petition for en banc hearing denied, with three judges dissenting • Information product claims appear to have more protection than “tangible products”?

48. The new developing § 271(f) law • Component can be anything that is, in some broad sense, “part” of an invention • A component need not be physical • A component need not be a claim element • The component supplied need not be a part of the product manufactured overseas • Sufficient if the component is somehow used to make the overseas product • The “idea” for an invention is a “part” of the invention and therefore within the expanded definition of component • The actual mode of transmission or “supply” is irrelevant • For purposes of 271(f), the copying of a “component” overseas is equal to the supply of the component from the United States

49. Effect on European Companies • Creates disincentive for European companies in emerging technology areas to base their development operations in the U.S. • Could lead to multiple recoveries for the same infringement • Should lead to renewed or revised audits of licensing obligations

50. Thank You!